Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

PRIVATE BUSINESS

BARNSLEY BOROUGH COUNCIL BILL

Lords amendment agreed to.

WHITEHAVEN HARBOUR BILL

As amended, considered; to be read the Third time.

GREATER LONDON COUNCIL (MONEY) BILL

Order for Second Reading read.

To be read a Second time upon Thursday.

COUNTY OF KENT BILL [Lords] (By Order)

Read a Second time and committed.

Oral Answers to Questions — EDUCATION AND SCIENCE

Overseas Students

Mr. Dubs: asked the Secretary of State for Education and Science what assessment he has made of the effect of increased fees on the numbers and countries of origin of overseas students.

Mr. Canavan: asked the Secretary of State for Education and Science whether he will conduct an investigation to find out the effects of Government policy of increasing fees for overseas students.

The Secretary of State for Education and Science (Mr. Mark Carlisle): The effect of increased fees, and other factors, on the numbers and countries of origin of overseas students is already being investigated as part of a continuing exercise to monitor the effects of full-cost fees policy. I refer the hon. Member to the reply which my hon. Friend the Under-Secretary gave to the hon. Member for Derby, North (Mr. Whitehead) on 30 April.

Mr. Dubs: Will the Secretary of State confirm that the Prime Minister gave a commitment to the President of Nigeria on his recent visit that she would look again at the whole policy? Was the right hon. and learned Gentleman consulted before the Prime Minister gave that undertaking?

Mr. Carlisle: I cannot confirm whether any such undertaking was given. However, I can tell the hon. Gentleman that the number of students coming from Nigeria to universities last year was an increase on the figure for the previous year.

Mr. Canavan: Is not the Secretary of State ashamed that he is personally responsible for charging overseas students from some of the poorest countries the highest fees in the world? Combined with the other cuts in higher education, is not the Secretary of State aware that the viability of certain courses, especially technology-based courses in some of the Scottish colleges and universities, is threatened to such an extent that home students as well as overseas students will suffer unless that disastrous policy is changed?

Mr. Carlisle: I am certainly not ashamed. It was necessary to take the steps because the subsidy being paid indiscriminately to all students from overseas was running at over £100 million a year. It was being paid by the British taxpayer. We believed that it was right that that indiscriminate subsidy should be phased out.
With regard to the hon. Gentleman's reference to the poorer countries, the Foreign and Commonwealth Office recently announced that funds are being allocated under the overseas aid programme so that the number of new awards in 1981–82 for students and trainees from developing countries under Government-to-Government programmes and the Commonwealth scholarship and fellowship plan will be the same as in 1978 and 1979.
The hon. Gentleman also asked about the overall number of students. I remind him that the number in universities is still 4 per cent. above the number which the Labour Party planned under its quota for this year.

Mr. van Straubenzee: Has my right hon. and learned Friend observed the view in the Brandt report that overseas aid, particularly for students, should not be indiscriminate but should be channelled towards the poorer countries? When, economically, he is able to reconsider the matter, will he bear that view in mind? Will he also bear in mind the real contribution that we can make not only at degree but also at sub-degree level?

Mr. Carlisle: I share my hon. Friend's desire that any aid that we can give should be channelled towards the most deserving countries. My basic criticism of the plan that we inherited is that it did not attempt to discriminate in any way in the assistance given. If and when resources become available, we should be more discriminating in the aid that we give.

Mr. Maclennan: Can the Secretary of State confirm that in this academic year the number of students coming from Hong Kong has dropped by about 40 per cent. which is mirrored by an equivalent increase in the number going to the United States? Is the Secretary of State not concerned about that in view of the growing importance of Hong Kong as the commercial and financial centre of the Pacific basin and its importance to this country?

Mr. Carlisle: I cannot confirm the figures without notice, but I can tell the hon. Gentleman that over 1,000 university students came here from Hong Kong last year, which was the third highest number from any country. The figure for Hong Kong students in advanced and non-advanced colleges of further education was 3,870, which was again the third largest. In 1980–81, the figure for all overseas students entering our universities was down by 10 per cent. on the previous year.

Mr. Whitehead: If the Minister will not yield to arguments of altruism, will he consider arguments of self-interest? Is he prepared to enumerate the courses in


universities, polytechnics and colleges of education that are in peril because of the massive fall-off in the number of overseas students?

Mr. Carlisle: I do not accept that argument. The number of overseas students coming to our universities was down last year by only 10 per cent. We still have more overseas students coming here now than under the quota system of the previous Government. However, if the demand for certain courses drops off, there may have to be rationalisation.

Polytechnic Teachers

Mr. Kilfedder: asked the Secretary of State for Education and Science when he intends to make a statement on the recognition of the Association of Polytechnic Teachers in response to its formal application which he received on 16 November 1979.

Mr. Alexander: asked the Secretary of State for Education and Science if he will now announce his decision on the application from the Association of Polytechnic Teachers for a seat on the Burnham committee; and if he will make a statement.

Mr. Mark Carlisle: I have had a series of representations on these matters and intend to announce my conclusion within a month.

Mr. Kilfedder: Since it is manifestly unfair that settlements reached in the Burnham further education committee should be imposed on lecturers without representation, will the Secretary of State ensure that the APT is adequately represented on the committee?

Mr. Carlisle: There is no distinction in the pay structure or other nationally agreed conditions of service between teachers employed in polytechnics and those employed elsewhere in public sector further education, but I shall bear the hon. Gentleman's point in mind in reaching my conclusion.

Mr. Flannery: Is the Secretary of State aware that there are at least half a dozen questions down on this matter, basically from Conservative Members? Is he further aware that such teachers are adequately represented on the Burnham committee by the National Association of Teachers in Further and Higher Education? Does he accept that the Tory questions will tend to divide the teachers on the committee and weaken their position and that that is the ulterior motive behind the support for the APT?

Mr. Carlisle: My hon. Friends have several questions down on the Order Paper, as the matter is of interest to them. The hon. Gentleman holds the opposite opinion to the hon. Member for Down, North (Mr. Kilfedder). Overall, in further and higher education in the maintained sector the APT represents only 3·6 per cent. of teachers and lecturers, but in polytechnics alone it represents 16·4 per cent.

Mr. Latham: Is my right hon. and learned Friend aware that we put down the questions because we wanted polytechnic teachers to be recognised by the union of their choice? Does he accept that, although we are pleased that he will be announcing his decision in a month, we hope that it will be a positive one?

Mr. Carlisle: Having said that I shall announce my decision within a month, I do not think that my hon. Friend would expect me to prejudge the issue.

Mr. Gwilym Roberts: Does the Minister accept that, although 16 per cent.—or 2,000—of polytechnic teachers are members of the APT, many more are represented by NATFHE, and that it would be absurd to encourage further segration in the representation of polytechnic teachers?

Mr. Carlisle: On 31 December last year, the relevant membership of the APT was 2,756, which is 16·4 per cent. of potential membership in polytechnics.

Speaking Difficulties (Special facilities)

Mr. Edwin Wainwright: asked the Secretary of State for Education and Science if he will take steps to improve the special facilities within the education system for children with speaking difficulties.

The Under-Secretary of State for Education and Science (Mr. Neil Macfarlane): It is the responsibility of each local education authority to ensure that the educational facilities available in its area are adequate to meet the needs of all the children of the area. The Government's views are set out in the White Paper "Special Needs in Education", which forms the basis for the Education Bill currently before Parliament.

Mr. Wainwright: Is it not time that the Minister and the Government realised that their actions over the past two years have made it difficult for local education authorities to maintain, let alone to improve, the special facilities for those poor children with speaking difficulties and that even dyslexia cannot now be catered for? When will the Government take steps to see that such children are properly educated? Leaving aside the provision of new facilities, will the Minister take action over Greenside special school in the Barnsley metropolitan area, which is threatened with closure?

Mr. Macfarlane: The hon. Gentleman has asked wide-ranging questions. He raised the local problem at the previous Question Time, and we have exchanged correspondence since. The problem is very much one for the local authority. Local education authorities can employ speech therapists. My Department, far from taking no action, has given a grant to the Invalid Children's Aid Association, which has also had a further grant for language unit provision, which was the subject of the hon. Gentleman's original question.

Mr. John Wells: Is my hon. Friend aware that many years have passed since Professor Randolph Quirk made his report on the speech therapy profession and many local authorities are finding it extremely difficult to provide facilities for speech therapists and to pay them a proper professional salary? Will the Government help local education authorities? Will my hon. Friend bear in mind the fact that it is sometimes mistakenly believed that the problem concerns dialect, but that it is essential to have speech therapists in dialect as well as speech therapists with an Oxbridge accent?

Mr. Macfarlane: I am certainly aware that the Quirk report's recommendations have been out for some time. Essentially this is a matter for my right hon. Friend the Secretary of State for Social Services. The Association for All Speech-Impaired Children has expressed its concern to my right hon. and learned Friend the Secretary of State for Education and Science and to the DHSS. We want local


authorities to respond to the requirements of the schools in their areas. Local education authorities are best suited to judge what is needed there.

Mr. Kinnock: Will the Minister confirm that it is still the Government's policy to improve provision for children with special educational needs? Is it also their policy to promote the integration of such children into normal schools where appropriate? If so, will the hon. Gentleman now exert his influence to ensure that the proper amount of money is available to local education authorities to enable them to make satisfactory provision for children with speech defects as well as for many other children with partial or significant learning difficulties?

Mr. Macfarlane: Funding is essentially a matter for the local education authority. My Department already funds the Invalid Children's Aid Association, which has been given a grant to collate for use at other schools and units curriculum material and teaching methods in use at its John Horniman school at Worthing. A tremendous amount is happening in this area. The association has also recently established an information service on language provision with financial assistance from my Department.

Mr. Greenway: Does my hon. Friend agree that it is often difficult to define whether a serious speech difficulty exists? Is not good speech important for all pupils, and should not the curriculum take account of that?

Mr. Macfarlane: I accept that. Although some 70 per cent. of speech therapists are concerned with educating children, they are appointed and employed by the National Health Service. My Department's officials maintain continual contact with their colleagues in the DHSS, and similar liaison is encouraged by the local education authorities and the area health authorities in this matter.

Mr. Wainwright: On a point of order, Mr. Speaker. In view of the unsatisfactory nature of the Minister's reply, I propose to raise the matter on the Adjournment at the earliest possible opportunity.

Polytechnic Teachers

Mr. Stephen Ross: asked the Secretary of State for Education and Science whether he is satisfied that the teacher in polytechnics and other institutions of higher education is adequately represented for the purposes of collective bargaining under the present arrangements.

Mr. Mark Carlisle: The only aspect of this question that falls within my responsibility is the determination of the composition of the Burnham further education committee, which negotiates pay. On that matter, I refer the hon. Member to the answer I gave some moments ago.

Mr. Ross: In view of the right hon. and learned Gentleman's announcement earlier that he intends to announce a decision within a month on representation of the Association of Polytechnic Teachers, will he accept, from one who on this side of the House is in a minority, that 16 per cent. is a substantial minority? These people have been waiting since November 1979 for a decision, so a decision will be welcome if it is in the affirmative.

Mr. Carlisle: I regret that I have not yet been in a position to make the decision. There has been a series of representations which I have had to take into account. I shall come to a conclusion as soon as I can.

Mr. Newens: Does the Secretary of State consider that the proliferation of organisations representing teachers will make it more difficult for decisions and agreements to be reached in the solution of industrial problems? Does he recognise that this group of teachers is already represented by NATFHE, and that any change in the arrangement is likely to be a recipe for prolonged industrial difficulties?

Mr. Carlisle: The teachers in question are clearly not represented by NATFHE because they are not members of that association. That is the purpose of their application. Of course I have to consider all these reasons when reaching my conclusion. There are other bodies than NATFHE on the further education committee.

Expenditure Cuts (Scotland)

Mr. William Hamilton: asked the Secretary of State for Education and Science if he will make a statement on the effects of the proposed cuts in education expenditure on Scottish universities and other forms of higher education.

The Under-Secretary of State for Education and Science (Dr. Rhodes Boyson): The allocation of the Government's grant to individual universities, including those in Scotland, is a matter for the University Grants Committee. Higher education in Scotland, other than universities, is a matter for my right hon. Friend the Secretary of State for Scotland.

Mr. Hamilton: Does the Minister realise that the proposed cut in university expenditure of one-eighth over two years is causing profound concern? Is he aware that it was described by Sir Alec Merrison, chairman of the vice-principals committee, as a profoundly stupid policy? That is an understatement, since the cuts will result in thousands of young people being deprived of higher education. Is it not a callous and stupid policy, which is bound to have a long-term effect on industrial development in Scotland and the rest of the United Kingdom?

Dr. Boyson: The suggested cut is between 8 and 8½ per cent. over three years. There will be a fall in student numbers because of the reduction in the number of overseas students, although many universities, such as the London School of Economics, have recruited even more overseas students this year. In our university system there are already fewer pupils per member of staff than anywhere else in the world. The figure is half the average for Yale and Harvard, which are recognised universities. If it transpired that in three years' time there was one pupil more per member of staff than now, that would suffice to cover all the cuts.

Mr. Ancram: Is my hon. Friend aware that it is not so much the cuts as the speed with which they are made that is causing the concern? Does he agree that if the cuts are made in too great haste the very disciplines that he would like to encourage and preserve might be first hit?

Dr. Boyson: I appreciate my hon. Friend's point. The important consideration is to ensure that the cuts are made over the three-year period without touching the fabric of the system. That is why we are having discussions with the University Grants Committee, and why the committee is having discussions with the universities to ensure that the minimum damage is done.

Mr. Dalyell: Is it honourable for the Government simply to pass by on the other side and say that this is a matter for the UGC? What advice do the Government have for the University of Glasgow which finds the greatest difficulty in obtaining money for essential repairs? Its buildings are deteriorating. That is hardly wise management.

Dr. Boyson: At times of expansion the UGC has been defended for having stopped direct Government interference. The same defence must apply now. The academics must be left to make the major decisions. They—and Labour Members—would be the first to complain if we gave the committee directions from the centre.
Glasgow university's grant for 1981–82 has not yet been decided. When it has been, the university will have to decide its priorities.

Mr. John MacKay: Will my hon. Friend ensure that the Government participate in discussions with the UGC and the universities in order to try to concentrate the minority departments in one or two universities in Scotland instead of having them in every university? That is extremely wasteful and will become increasingly so as the number of students declines when the decline in school rolls hits the university population.

Dr. Boyson: Next year will see a peak in the number of 18-year-olds going up to university. There will be a drop thereafter of up to 30 per cent. however. I am grateful to my hon. Friend for having reminded me of that fact. Rationalisation should happen not only in universities in order to give economic numbers of students for courses, but across the binary line. Colleges of further education and polytechnics in the same area should not compete for students but should complement one another's provision of courses.

Mr. Robert Hughes: By cutting the money available to the UGC, the Minister is giving central direction. Is he aware that, within the universities, from governing body level through staff to students, there is deep concern and great anger at what is happening? The sort of facility that is suffering is in libraries where services are not available and up-to-date books cannot be provided. How can the Government be proud of running a university system like that?

Dr. Boyson: We all realise that there is concern. There has been continued expansion for 35 years. When that expansion ends and reassessment has to be made, the university system is in a new ball game. The hon. Gentleman asked about equipment. We are spending the same on it this year in real terms as last year, and when we came to power we increased the amount spent by the Labour Government.

Assisted Places Scheme

Mr. Dormand: asked the Secretary of State for Education and Science if he will make a statement on the progress of the assisted places scheme.

Mr. Mark Carlisle: Two hundred and twenty schools will be providing assisted places from September of this year. Participation agreements have been made for 204 of them and are being prepared for the remainder. A total of

5,439 assisted places will be available, of which 984 will be at sixth-form level, and the schools are currently engaged in the selection of assisted pupils.

Mr. Dormand: Why is not the right hon. and learned Gentleman honest about the matter? Why does he not admit that, despite all the fine things said about it, the scheme is a monumental flop? More importantly, will the right hon. and learned Gentleman put an end to the scheme so that the money spent on it can be put to use on the essential aspects of the service, which are being seriously neglected?

Mr. Carlisle: With great respect to the hon. Gentleman, and although we may differ on the scheme's purpose, I must reject what he said about what is happening in practice. Obviously, it is too early to give the full numbers involved. However, all the indications are that the scheme is going well.

Mr. Stokes: Is my right hon. and learned Friend aware that the nation needs more public schoolboys not fewer, with their qualities of leadership and discipline and with their ability to mix with all types of people in society?

Mr. Carlisle: I am aware that the assisted places scheme will both widen parental choice and increase educational opportunity.

Mr. Kinnock: Will the Secretary of State inform his hon. Friend that few public schools are engaged in the scheme? They have been running away from the scheme since its announcement. Is the right hon. and learned Gentleman further aware that the available evidence shows that applicants for assisted places come from a class of home that bears a close resemblance to that from which direct grant school pupils came? Is the aim of providing private education for the children of the poor being fulfilled? Does the right hon. and learned Gentleman recall the words—[Interruption]. I know that Conservative Members are embarrassed about the assisted places scheme and do not want to hear about it. Does the right hon. and learned Gentleman recall that Mrs. Mary Warnock said that when Ministers dismiss the £3 million that is being spent on the assisted places scheme this year as chickenfeed, it should be borne in mind that there are other chickens, including disabled children, to feed with that money?

Mr. Carlisle: First, I am aware that out of over 200 schools invited to join the scheme, 11 declined. Secondly, I think that it is right to say that every direct grant school that was forced into independence by the Labour Government has joined the scheme. Thirdly, all the indications contradict the hon. Gentleman's remarks. It would seem that the individual grant per child, based on the parents' income, will be higher than we had assumed because most of the places are going to parents of modest means.

Pupil-Teacher Ratio

Mr. Heddle: asked the Secretary of State for Education and Science what were the average ratios of pupils per qualified teacher in all maintained primary and secondary schools in each local education authority in England for the years 1978, 1979, 1980 and for the latest available date.

Dr. Boyson: I am pleased to tell the House that the ratio of pupils per qualified teacher in maintained primary and


secondary schools in England improved consistently in each year from 1978–80. The information for 1981 is at present being collated. I shall arrange to send my hon. Friend statistical bulletins with the information for each local education authority.

Mr. Heddle: Although I eagerly await the figures for 1978 onwards, may I ask my hon. Friend whether he agrees that when those figures are published they will reflect a better pupil-teacher ratio than for any of the years that the Labour Party was in office.

Dr. Boyson: I confirm my hon. Friend's point. In January 1981 the overall pupil-teacher-ratio in England was 18·6:1. That is the lowest figure that has ever been achieved. In 1978, the pupil-teacher ratio was 19·7:1; in 1979 it was 19·4:1; in 1980, 18·9:1 and in 1981—the year with the lowest figure ever—18·6:1.

Mr. R. C. Mitchell: Does not the Minister realise that giving the figures for pupil-teacher ratios disguises what is happening in schools? Is he not aware that if a specialist teacher leaves a secondary school and is not replaced because of falling rolls, a subject is often dropped from the curriculum? Does not he accept that if one of eight members of staff in a primary school leaves, and there are only seven teachers for eight classes, the school either has to split up the years or accept a very large class? That is what is happening in schools. Does not the hon. Gentleman realise that?

Dr. Boyson: Like the hon. Gentleman, I am an ex-teacher. His subject was mathematics and I am told that he taught very well. [Interruption.] The figures are as accurate as the hon. Gentleman would accept when marking an exercise book. We have reduced the number of teachers by only half the drop in the number of pupils, because we are aware of the position. Since local education authorities and head teachers know that they have better pupil-teacher ratios, it is up to them to use the extra teachers in a way that will prevent such a situation from arising.

Mr. Thornton: Does my hon. Friend agree that the pupil-teacher ratio is not the only determinant of quality in our schools? The quality of teaching is far more important.

Dr. Boyson: I am grateful to my hon. Friend for that question and comment. Indeed, I agree with him. In 1977, under the Labour Government, 37 per cent. of those accepted in colleges of education did not have O-level mathematics and 5 per cent. did not have O-level English. The fact that colleges of education are accepting only those with O-levels in English and maths and two A-levels will do more for teacher training that 100 Royal Commissions.

Mr Christopher Price: Is the hon. Gentleman attempting to contradict the evidence of Her Majesty's Inspectorate? Is he aware that the chief inspector said that it would be a miracle if the curriculum were maintained and gave the very reason that my hon. Friend the Member for Southampton, Itchen (Mr. Mitchell) outlined? What will the hon. Gentleman do to maintain the curriculum, as he has a duty to do under the Education Act 1944, if there are gaps in it as a result of falling school rolls?

Dr. Boyson: I am glad to assure the hon. Gentleman that the Conservative side of the House b believes in miracles. The degree of spiritual aspiration among

Conservative Members is intense. The problem of the content of the curriculum has not arisen solely as a result of a recent report from Her Majesty's Inspectorate. For 10 to 15 years we have said that there has been a retreat from the basic curriculum. We have published documents which suggest that there should be a return to basic subects such as English, mathematics, history and geography. That will do more to show what should be taught in schools than anything that has been done for a long time.

Temporary Employment Schemes (Further Education)

Mr. Campbell-Savours: asked the Secretary of State for Education and Science what proportion of young people in the various temporary employment schemes of the Manpower Services Commission is receiving further education.

Mr. Macfarlane: In 1979–80 38 per cent. of young people who participated in the work experience elements of the youth opportunities programme received some form of off-the-job training. The MSC hopes shortly to have more recent information.

Mr. Campbell-Savours: Has the Minister seen the report of the West Cumberland Training Association, which links work experience with further education in traineeship modules? Will he put it to the Under-Secretary of State for Employment that perhaps money could miraculously be brought forward to set up some experimental modules?

Mr. Macfarlane: That may be the case in certain areas of the United Kingdom. The hon. Gentleman must pursue the matter with the Department of Employment. However, the MSC is examining closely with local education authorities the scope that exists for all trainees to receive some form of off-the-job training. It is important that the education service should be brought alongside the special programmes boards to ensure that such experiments can be discussed at all local area levels.

Mr. Madel: As the education content in the MSC's programmes is improving in quality, is there not a special responsibility upon careers officers this summer to ensure that there is a 100 per cent. take-up of the courses available to male and female school leavers?

Mr. Macfarlane: Yes. I want to place on record that the careers service generally has never been more aware of the need to adapt and adjust in local areas. I accept that the Manpower Services Commission's role in assessing the quality of vocational training is an integral part of any assessment.

Mr. Whitehead: Has the Minister seen the recent Youth Aid report which shows how few people who go through the MSC scheme have the opportunity of real work afterwards in the dust-bowl society produced by the Government? Is it not obligatory for the DES to meet the MSC half way and to produce a programme with a real educational content to help young people who take part in the MSC programme?

Mr. Macfarlane: Not everybody in the scheme require an educational element. I accept the importance of the current consultations between the Department and the MSC. The new training initiative which will be announced in the next few weeks is an important element.

Mr. Kenneth Lewis: Does my hon. Friend agree that his Department and the Department of Employment should get together to see what can be done to encourage young people who are not in the youth opportunities scheme, and therefore do not receive any pay, to stay in education? Should not they receive recompense for doing so?

Mr. Macfarlane: I want the House to understand fully that my Department is actively engaged at all levels in discussion on the matter. I hope that the education services in the regions are also fully involved.

School Discipline

Mrs. Faith: asked the Secretary of State for Education and Science what is his policy regarding the recommendations of the report "Discipline or Disorder in Schools: a Disturbing Choice" by the National Association of Schoolmasters and Union of Women Teachers.

Dr. Boyson: The pamphlet contains a number of useful comments and suggestions on matters which are primarily the responsibility of local education authorities and schools.

Mrs. Faith: Does my hon. Friend agree that the report shows that teachers are worried because some authorities are not taking action against parents when they aid and abet truancy and delinquency? Does he agree that more co-operation between parents, education authorities and teachers would help teachers when dealing with difficult and delinquent pupils?

Dr. Boyson: I agree that the report shows that anxiety and the Government share it. The report also shows that many teachers, particularly the authors of the pamphlet, resent the fact that some local education authorities are stipulating whether corporal or other punishment can be used in schools. The report makes it clear that such a decision should be made in the schools by the profession, not by laymen outside.

Education Authorities (Investigation)

Mr. Dobson: asked the Secretary of State for Education and Science whether following its overall examination of the service provided by the Inner London Education Authority he will ask Her Majesty's Inspectorate to make similar examinations of other education authorities.

Mr. Mark Carlisle: I rely on Her Majesty's Inspectorate for a range of information and advice relevant to policies on education. The information and advice is based on inspection and can, where appropriate, take the form of an assessment of the provision of education throughout a local education authority.

Mr. Dobson: In view of that reply, will the Secretary of State change his policies and ask HMI to publish an overall assessment of the education services provided, for example, by the Cheshire and Northamptonshire county councils? Alternatively, is the Secretary of State willing to rely entirely on the scrutiny of the electorate when assessing the value of the education service provided by those authorities?

Mr. Carlisle: Although I have the power to direct the inspectorate to carry out a particular form of investigation, I believe that it is better for the inspectorate to decide where it does its work and which schools it should inspect.

Mr. Bob Dunn: If ILEA is to be controlled by Labour, does my right hon. Friend accept that the leadership provided until recently by Sir Ashley Bramall was much more acceptable than the new leadership elected last Saturday is likely to be, bearing in mind that the new leadership is motivated more by the teachings of Karl Marx than by the teachings of Jesus Christ?

Mr. Carlisle: Sir Ashley and I have had many differences on policy matters, but he has led ILEA for 10 years. Everybody will accept that he has been extremely dedicated in that task. I share the distaste of many of the method by which he was removed from office.

Schools Information (Publication)

Mr. Freud: asked the Secretary of State for Education and Science when he now envisages publication of required schools information for parents; and what measures he intends to take to ensure that such information has the fullest possible distribution.

Mr. Macfarlane: The Education (School Information) Regulations 1981 were laid before the House on 1 May. They prescribe the information to be published by local education authorities and school governors and the manner of publication and distribution. Publication will start in the 1981–2 academic year.

Mr. Freud: Does the Minister accept that the provision of information is not enough? Will he assure the House that the information will be publicised and that, in areas with ethnic minorities, the information will be multi-lingual?

Mr. Macfarlane: That is incumbent upon the local education authorities. We expect that most authorities will wish to publish the information this autumn or soon after Christmas. I urge them strongly to do that.

Mr. Cryer: The Minister is placing another statutory duty on local education authorities. Will he confirm that Government money will be provided to meet in full the cost of the extra statutory duties which the Government are imposing upon education authorities?

Mr. Macfarlane: That is a matter for the local education authorities, which have been consulted fully throughout all the negotiations leading up to legislation last year.

Oral Answers to Questions — PRIME MINISTER

President of France

Mr. Renton: asked the Prime Minister when she next plans to meet the President of France.

The Prime Minister (Mrs Margaret Thatcher): I expect to meet the President of France next at the European Council on 29 and 30 June.

Mr. Renton: Does my right hon. Friend recall the French proverb "À nouveaux seigneurs nouvelles lois"?[Interruption]

Mr. Speaker: Order. We must all understand what is being said. Perhaps the hon. Gentleman will translate.

Mr. Renton: With pleasure, Mr. Speaker. It means "New brooms sweep clean." To what extent does my right


hon. Friend think that the advent of M. Mitterrand may sweep away some of the procrustean obstacles to change and enable us to start on the vital task of reforming the EEC budget system whilst Britain holds the Presidency of the Community?

The Prime Minister: It is not for me to adjudge between the personalities of the people that France chooses to lead her. The problems are difficult but they remain the same. The reform of the common agricultural policy and the budget structure are vital issues which we must undertake to tackle this year and seek, at any rate, a preliminary solution by the end of the year. Britain will go ahead determined to seek those solutions.

Mr. Foot: May I thank the Prime Minister for the speed and generosity with which she sent her congratulations to President Mitterrand on his great victory for Socialism? Does she agree that one element in that victory was the recognition by the people of France that there is a real alternative to the defeatist policy of accepting mass unemployment? Does she agree that the elections nearer home show exactly the same spirit rising in Britain?

The Prime Minister: Of course I send congratulations to anyone elected by the democratic system, in which I wholly believe. That reminds me that I have not sent congratulations to Berlin, where Socialism was defeated.

Mr. Foot: Following the arrangements that the right hon. Lady has just announced, may I ask whether she has sent congratulations to the hundreds of successful Labour candidates in the election last week? If she is sending congratulations, will she spread them properly around the country?

The Prime Minister: The answer is "No". Not even the right hon. Gentleman would wish me to send congratulations to everyone. I notice that in relation to the GLC Mr. McIntosh, who was a moderate Labour victor, said:
The danger to the Labour Party today is so great that I have decided I must expose what is going on. It's gang warfare, just like the Jets and the Sharks.

Mr. McQuarrie: When my right hon. Friend meets the new President of France, will she impress on him the urgent need for the early completion of the common fisheries policy within the European Community?

The Prime Minister: Most certainly. Chancellor Schmidt and I are firmly agreed on the need for a common fisheries policy and on the need to achieve one shortly which is satisfactory to all members of the Community.

Engagements

Mr. Canavan: asked the Prime Minister what are her official engagements for 12 May.

The Prime Minister: This morning I held a press conference with Chancellor Schmidt following our meetings yesterday. In addition to my duties in this House I shall be having meetings later today with ministerial colleagues and others including one with the United Nations' Secretary-General. This evening I hope to have an audience of Her Majesty the Queen.

Mr. Canavan: In view of the Prime Minister's weekend speech to the Scottish conference of the Tory Party, may we know whether she was taken up to Perth

blindfolded so that she would not see the industrial deserts that she has created? With Scottish unemployment fast approaching 300,000, how can she expect us to believe all that claptrap about a dramatic industrial recovery, especially coming from the lips of the woman who has wrought more damage to Scottish industry in two years than the Kaiser and Hitler managed to achieve in two world wars?

The Prime Minister: I would expect even the hon. Gentleman to rejoice in the many orders that Scottish industry has recently won. I think that he prefers it not to get orders because he wants to wallow in misery.

Mr. Viggers: Has my right hon. Friend noted from a parliamentary answer that there are now more than 16,000 pre-1950 widows of non-commissioned ranks receiving pensions granted by her Government? Does she take pride in that, bearing in mind that the Labour Government said that it was administratively impossible?

The Prime Minister: We most certainly take pride in that, as do the many widows involved and the Armed Services.

Mr. David Steel: When the Prime Minister has her meeting this afternoon with her ministerial colleagues, will she consider which of them are overdue for elevation to the other House? Is she aware that last week 395 Liberals were elected to local authorities? Is it not time that we had some parliamentary by-elections?

The Prime Minister: We have already had a list of people elevated to the other House. It is not my intention to make another list of working life peers.

Mr. Cadbury: Despite her busy day, will my right hon. Friend reflect on the fact that production of all Mini-Metros at the Longbridge plant and of all Ford Escorts at Halewood has been stopped by unofficial strikes? Does she not agree that unions and management must end the tradition of unofficial strikes, otherwise the British motor industry will destroy itself, with catastrophic effects on the entire economy?

The Prime Minister: I am grateful to my hon. Friend for raising that point. We have two cars that are acknowledged winners—the Escort and the Metro. It is crazy that those who produce them should be on strike. They are putting in jeopardy their own jobs and the jobs of many others who supply them. If unemployment is increased because of that and because of this country's bad reputation abroad for strikes, they will have only themselves to blame.

Mr. Molyneaux: In relation to the evidence, to which I have drawn the Prime Minister's attention, that mortar attacks on our security forces are being organised from the Irish Republic, may I ask whether the right hon. Lady is aware that the people of Northern Ireland rely on her to take a tough line with the Irish Government?

The Prime Minister: The hon. Gentleman drew my attention to the mortar attacks on border posts, which, we believe, from forensic evidence, involve mortars of a sort produced by the IRA, although I cannot confirm the other matters referred to in the hon. Gentleman's letter. I shall continue wholeheartedly the full guarantee to the people of Northern Ireland which is enshrined in legislation. However, we must strive to work for peace and reconciliation with the Republic.

Factory Closures

Mr. Campbell-Savours: asked the Prime Minister how many hon. Members she has seen on matters relating to factory closures since she last answered oral questions; and how many jobs are expected to be lost in the closures discussed.

The Prime Minister: I have had no such meetings since 7 May.

Mr. Campbell-Savours: Is the right hon. Lady aware that, as a result of her industrial gang war policy, unemployment due to closures in the Northern region has nearly doubled since the general election? Is she aware that in Cumbria it has doubled and in the West Cumbrian constituencies it has more than doubled? It will be almost 19 per cent. to 20 per cent. in the next few months. Will she tell our constituents in the Northern region when those factories that now stand empty will be put back to work under her policies?

The Prime Minister: There will be more factories in work, and new factories started, when people are prepared to purchase the goods and services produced. I am aware of the steel problem in the hon. Gentleman's constituency. He should know that steel has been over-manned for years. If the Labour Government had tackled the problem more vigorously we would have had a better equipped and more efficient steel industry. Consequently, we would now have a larger share of the world market. That problem must be dealt with. Until it is we shall not have a flourishing industry able to compete with any the world over.

Sir William Elliott: Is my right hon. Friend aware that in the trading estates in the Northern region in the past 12 months there have been three times as many new openings as there have been closures? [HON. MEMBERS: "No."] Look at the facts. Many of those new openings are small factories and there is a buoyant demand for more new small factories. To continue with the good news, is my right hon. Friend aware that a £14 million order for a Norwegian bulk carrier to be built on the Tyne was announced at a press conference in Oslo this morning?

The Prime Minister: We are always ready to accord congratulations to those many companies that are gaining new orders against competition from the rest of the world. In my speech in Scotland I gave lists of them. Many companies are doing extremely well. We accord congratulations to those many small companies that are starting up in the new factories to which my right hon. Friend the Secretary of State for Industry gives great priority. I congratulate my right hon. and learned Friend the Chancellor of the Exchequer on introducing an enterprise Budget which gives many people the opportunities, if they will take them. [Interruption.] The Opposition sit and laugh but do not produce jobs.

Dr. Edmund Marshall: Is the right hon. Lady aware that last Thursday, GEC Small Machines Ltd. announced its proposal to close its factory at Thorne in my constituency? That would mean a loss of 424 jobs in an

area which is already an unemployment black spot. Will she have urgent consultations with GEC in an effort to avert that further severe loss?

The Prime Minister: The hon. Gentleman and many of his colleagues always miss one point. To keep factories in existence one needs customers and to get customers one needs to be competitive. There was no shortage of demand in this country last year. There was a shortage in the supply of goods produced at competitive prices, with good delivery dates, to fill that demand. Until industry becomes competitive we shall not produce the jobs, but other companies in other countries will.

Mr. William Hamilton: Tedious.

The Prime Minister: Tedious it may be, but it is the truth.

Mr. Archie Hamilton: Does my right hon. Friend agree that to use taxpayers' money to support jobs in one sector of the economy merely takes money away from the profitable and productive side of the economy?

The Prime Minister: We must ensure that we do not take too heavily from those successful companies to subsidise other companies, unless, by taking that subsidy, they are prepared to restructure themselves, to slim their operations down so that they become competitive. In that case we give them subsidies to do so.

Engagements

Mr. Christopher Price: asked the Prime Minister if she will list her official engagements for Tuesday 12 May.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Price: Can the Prime Minister explain the curious logic of the present public sector pay policy? What is the logic of tearing up the negotiating machinery for the Civil Service while respecting that of the Armed Services? What is the logic of limiting to 7 per cent. the pay of the Civil Service and other groups, while allowing 11 per cent. or even more to other public servants in the Armed Services, or public servants who have a little more industrial clout? How can she expect to solve the Civil Service dispute with twisted logic of that nature?

The Prime Minister: I shall be making a statement shortly, when the reports have been printed, about the parts of the public service which are the subject of reviews by independent review bodies. We feel that a Civil Service award of 7 per cent. is as much as the private sector can afford to finance at present. That award is on top of previous awards of 50 per cent. during the past two years. The Civil Service may have complaints against the last Government concerning inadequate pay, but we do not believe that it has complaints against this Government. Incidentally, I understand from Chancellor Schmidt that the German Civil Service has just settled for 4·3 per cent.

Social Security Benefits (Payments)

The Secretary of State for Social Services (Mr. Patrick Jenkin): With permission, Mr. Speaker, I should like to make a statement on the arrangements for paying social security benefits.
The House will recall that last December I published a consultative document, Cmnd. 8106, setting out the Government's proposals for improving the efficiency of paying social security benefits. I can now report the outcome of our consultation and announce our decisions.
The Government's proposals in the consultative document fell into three categories: first, that most beneficiaries should be able to have their benefits paid direct into their bank accounts if they wished; secondly, that child benefit should be paid four-weekly to most mothers, except for certain vulnerable groups who could retain weekly payment if they wished; and, thirdly, that cerain improvements should be made in the efficiency of Department of Health and Social Security internal administrative procedures for paying benefits. These changes would have produced savings in administrative costs rising to £38 million a year, at today's prices, by 1987–88.
There was general acceptance of the changes in DHSS administrative procedures, and these will go ahead. I will publish a list in the Official Report. There was also a wide welcome for giving people the option to have their benefits paid direct into bank or other accounts. I stress that this is an option. Pensioners, for instance will continue to draw their pensions weekly from the post office unless they decide otherwise. We will begin to offer the choice of bank payments from mid-1982. These changes will save eventually about £25 million a year at today's prices.
Most of the 600 responses that I have received from individuals, organisations and local authorities objected to the proposal to pay child benefit every four weeks to most mothers. Criticisms varied, but the general theme running through many letters was that mothers should be able to make a voluntary choice between weekly or four-weekly payment. There has also been anxiety about the impact of the changes on the Post Office and, in particular, on the sub-post office network.
In putting forward their proposals the Government have had two objectives in mind: first, to reduce the cost of administration and, secondly, to encourage the movement away from weekly cash transactions to more modern methods of money transmission. The question is how to reconcile these highly desirable aims with the anxieties that have been put to us.
We are in no doubt that in the longer term it is right to encourage the great majority of mothers to accept four-weekly payment. However, we have decided that it would not be right to expect existing claimants to move to four-weekly payments, subject only to the exceptions that were set out in the White Paper. Accordingly, we will give all mothers currently in receipt of child benefit a free choice to decide whether they wish to continue to receive payment weekly or to switch to four-weekly payment. Towards the end of 1981 mothers receiving child benefit will be sent a simple form, which they will need to return to my Department if they wish to continue with weekly payment. From January 1982, for mothers who claim child benefit for the first time, and who already wait about six weeks for the first payments, four-weekly payment will be

the norm. Options for weekly payment of child benefit will, however, be available to three categories of new claimant—those receiving supplementary benefit, those receiving family income supplement, and lone parents.
The Government consider that this approach strikes a fair balance between the needs of beneficiaries and our duty to keep administrative costs down. We estimate that about half the existing beneficiaries will opt for weekly payment. On this basis, the saving under this head, estimated in Cmnd. 8106 at £13 million a year by 1987–88, will be reduced to about £7 million a year.
The Government remain firmly committed to maintain an adequate sub-post office network. The modifications that I have mentioned will mean that over the next five years DHSS business over post office counters will drop by the equivalent of about 5 per cent. of total counter business, but this will be more than compensated for by growth of counter business from other customers. The Government have re-examined with the Post Office the forecast of new business made in Cmnd. 8106, on the assumption that the British Telecommunications Bill is enacted, so that the Post Office can provide counter services for a wider range of public sector customers. The Government are confident, from this re-examination, that over the period to the end of 1985–86 counter business from new and existing customers can be expected to grow by up to 10 per cent. That is twice as much as the likely reduction in DHSS business. To provide a further safeguard, the Government also propose to make available from the administrative savings up to £2 million over the next five years to help smaller sub-post offices that are adversely affected if the new business does not grow at the same rate as DHSS business is reduced.
These changes will together reduce administrative costs by about £32 million a year, eventually. They will provide more modern methods of paying benefits without either harming the sub-post office network or causing hardship to beneficiaries. I hope that right hon. and hon. Members will accept that we have done our best to meet the concerns expressed in the House and elsewhere while moving ahead to achieve more efficient ways of paying social security benefits.

Mr. Norman Buchan: If that is the best that the Government can do to meet the demands that have been made on them, it is a pretty poor show. Does not the Secretary of State agree that the statement is both nonsensical and illogical and has no purpose other than to seek to satisfy the pledges made by the Prime Minister about savings? Is it not true that there is already massive disappointment about the proposals, and that that disappointment will be redoubled because of his endorsement of the main proposal, to which he has stuck, that new claimants will be compelled to go on to a four-weekly basis of payment? Is it not true that of those who at present can choose, over the past year an additional one-third have chosen weekly benefit? Is it not therefore true that the need is widespread? Is it not monstrous to put 80 per cent. of new claimants into a difficult position of need?
Further, does the Secretary of State really believe that giving an opting-in procedure to existing claimants will solve the problem? It is an imposition and a hardship for some of the most inarticulate members of the community.
Will the Secretary of State confirm that the basic saving is not the £32 million that he mentioned, because the basic proposal involves changing to a compulsory four-week


benefit uptake? Does it not mean that the total saving is a measly £7 million, at the cost of the destruction of freedom of choice?
I have one last question to put to the right hon. Gentleman. In view of his responsibilities, what is he doing to ensure that payments continue by playing his part in bringing his right hon. Friend to the negotiating table or the arbitration room with the Civil Service unions?

Mr. Jenkin: I hope that the hon. Member for Renfrewshire, West (Mr. Buchan), too, will wield his influence in trying to get common sense into the Civil Service dispute.
In this day and age it is absurd to imagine that the vast majority of mothers in this country cannot manage with four-weekly child benefit, when one bears in mind that for years mothers in every other European country have been paid family benefits either monthly or even three-monthly. We are being fair, provided that we give the option to those mothers who have been accustomed to receiving benefits on a weekly basis to continue on that basis.
The hon. Gentleman described the option as an imposition. That is a gross exaggeration. The simplest of cards will be attached to the appropriate child benefit book. The claimant will be required only to tick a box if she wants weekly payments. It will then be sent, at the expense of my Department, to the child benefit centre. How anyone can describe that simple procedure as an imposition passes my understanding.
We have had more than 30 years of a benefit payments system that has paid little attention to the enormous advances in technology, the changes in social habits, and the growth of the numbers of people with bank accounts. It is high time we did something about that, and we are doing so.

Mr. Buchan: The right hon. Gentleman is not meeting the main burden of the charge. As he said in his initial statement, virtually everyone involved with child benefit has rejected the proposals to put the bulk of our mothers on to a compulsory four-week uptake. The right hon. Gentleman said in his statement:
organisations and local authorities objected to the proposal to pay child benefit every four weeks to most mothers.
He has not taken that view on board. Neither has he taken on board the fact that half of our mothers now choose weekly payments voluntarily, with all the problems that that brings. He still intends to impose a four-weekly payment on 80 per cent. of our parents.

Mr. Jenkin: I remind the hon. Gentleman that 7 million mothers will have a free choice whether they remain with the weekly payment system or switch to monthly payments—[Interruption.] Yes, they will. The main burden of my statement is that they will have a choice. If we followed the hon. Gentleman's recipe we would never change anything. That is what Socialism is about.

Mr. Paul Dean: I welcome the Government's decision to give freedom of choice to mothers. Will my right hon. Friend confirm that freedom will apply to mothers if they have another child? Because sub-post masters are a vital link in our community life, will my right hon. Friend ensure that new counter business opportunities are available before sub-post offices begin to lose pension business, so that their future can be assured?

Mr. Jenkin: I confirm that existing claimants who have another child will not be treated as new claimants. They will continue to have their benefit paid as they originally opted. We have closely examined the detail of this scheme with the Post Office and have kept the National Federation of Sub-Postmasters fully informed of the various opportunities and options that exist for new business in the Post Office, especially for sub-postmasters. We estimate that during the next five years business from existing customers will grow by 9 per cent, offset by a decline of 3 per cent, giving a 6 per cent. increase in business. A conservative estimate is that there will be another 4 per cent. growth from new business that will be open to the Post Office when the British Telecommunications Bill is enacted. My decision to effect a more gradual changeover to four-weekly payments for child benefit means that we are confident that the build-up of new business will more than keep pace with the decline of DHSS business. If that does not happen in certain cases a £2 million fund will be administered by the Post Office to protect those who may suffer.

Mr. Andrew F. Bennett: Does not the Secretary of State agree that child benefit is often a lifeline for a family whose circumstances suddenly change—for example, when a mother has been deserted or a wage earner becomes unemployed? Is it not true that the present payment system ensures that the family has some money while other benefits are sorted out? Will he guarantee that the new bureaucracy will allow a mother who wishes to switch from monthly to weekly payments to do so in a matter of minutes at a social security office, rather than wait several weeks?

Mr. Jenkin: I have paid close attention to the circumstances of a mother going on to supplementary benefit and requiring payment of child benefit at short notice. If she cannot manage until her book runs out she can send her book to the child benefit centre immediately and obtain a new book for weekly payment. If she cannot manage, and needs money immediately, the local office will be prepared to make payments pending the new book, and will settle matters when the new book arrives. I am convinced that the new arrangements will protect the cases of hardship referred to by the hon. Gentleman.

Sir Timothy Kitson: Because of the importance of the sub-post office in rural areas, will my right hon. Friend give an assurance that if there is not a substantial increase in additional counter business he will consider increasing slightly the £2 million fund to ensure that sub-post offices can continue in rural areas?

Mr. Jenkin: I share my hon. Friend's view of the importance of the rural sub-post office network. There are already a number of safeguards for sub-post offices. The work review takes place only every three years. The 3,000 smallest sub-post offices have a guaranteed minimum scale payment of £1,600. Help is available from the Post Office if a reduction in income causes hardship. Where a loss of income occurs it amounts generally only to about two-thirds of any percentage loss of business.
We are adding to the new opportunities. I am confident that a £2 million fund is more than adequate to protect what I hope will be the few sub-post offices that find themselves in difficulties as a result of the change. The fund stands as a guarantee of the Government's commitment to maintain an adequate sub-post office network.

Mr. Clement Freud: Does the Secretary of State accept that in 1979 there were more than 21,000 sub-post offices? Does not his calculation of a £2 million fund mean less than £200 per sub-post office per year? Does he think that that is adequate? Will he bear in mind that the village post offices in Cambridgeshire and other rural areas are not showing any confidence in a 10 per cent. upsurge in business? Will he consider using the savings that he will make by the change to increase child benefit?

Mr. Jenkin: The hon. Gentleman's question is not apposite for me to answer on this occasion. It must be considered in the context of the public expenditure review as a whole. It is absurd to do a simplistic mathematical calculation as the hon. Gentleman has done. It is on a par with most Liberal propaganda. The smallest sub-post offices have a guarantee of income. It is in the tranche of sub-post offices with incomes between £1,600 and £5,000 a year that anxieties may arise. The fund will be primarily available for that tranche of about 7,500 sub-post offices. The precise details of how it will be administered are still to be worked out between my right hon. Friend the Secretary of State for Industry and the Post Office. We shall consult the National Federation of Sub-Postmasters before reaching a final decision.

Mr. Michael Morris: I congratulate my right hon. Friend on the depth of the consultations and the sensitivity of his proposals, especially in relation to one-parent families. Is he aware that the loss of sub-post offices is an important problem not only in rural areas but in urban areas? Will he ensure that there is adequate annual monitoring outside the Post Office, within the Department of Industry, in consultation with his Department, to ensure that pockets of major problems will be looked to rather than the global position?

Mr. Jenkin: I am grateful to my hon. Friend for his kind remarks. I assure him that my right hon. Friend the Secretary of State for Industry will carry out the monitoring for which he asked. The additional business that is already in sight for sub-postmasters includes something that has been badly needed for a long time, namely, the availability of energy stamps. I think that they will be popular and will bring a considerable amount of business. There is also the availability of facilities such as pensioners' rail cards, students' rail cards, family rail cards, bus passes and season tickets.
That is business that is well in sight. It could by itself add 4 per cent. to counter business. I am addressing the annual conference of sub-postmasters at Scarborough tomorrow afternoon and I think that its members will recognise that they are being offered a pretty fair deal.

Mr. David Ennals: In rejecting so much of the advice of the Select Committee, which studied precisely these issues, is not the right hon. Gentleman aware that there are two groups that are seriously at risk? The first group consists of mothers with modest incomes who depend upon weekly payments. The guarantee that such payments will continue until 1982 and that thereafter they will not be guaranteed to new applicants is no reassurance to those who are on modest incomes. The second group consists of the sub-postmasters. May I prophesy that when the right hon. Gentleman meets them

tomorrow he will find that there is a great deal of concern, which will be reflected especially in the rural areas, at the prospects that may arise as a result of his decision?

Mr. Jenkin: The Labour Government of whom the right hon. Gentleman was a member declared themselves in principle in favour of giving the option to switch to bank accounts—

Mr. Ennals: Choice.

Mr. Jenkin: We did not hear much from them at that stage about the problems of sub-post offices. The right hon. Gentleman is ignoring one of the key issues, namely, that for years for mothers receiving child benefit for the first time the first payment has always been four, five or six weeks in arrears. That is the fact. In the majority of instances mothers who have not been used to budgeting on weekly child benefit payments will not find it difficult to continue on the basis on which they start. If we did not accept that we would never be able to get the efficiency improvements and cost savings that must be the objective of any Government when the administration of social security absorbs so much of our national resources.

Dr. Brian Mawhinney: Does my right hon. Friend accept that the mathematical ability of the hon. Member for Isle of Ely (Mr. Freud) is on a par with his knowledge of sub-post offices in my part of Cambridgeshire? Will he confirm that the £2 million fund is exclusively for the use of sub-post offices and that none of it will be available to Crown post offices?

Mr. Jenkin: I can give my hon. Friend that absolute assurance.

Mr. Mike Thomas: Is the right hon. Gentleman aware that provided no undue pressure is brought to bear on those who opt for the four-weekly payment, and provided that he is prepared sympathetically to consider extending the range of exemptions for new claimants if there is a case made for a new category and provided that his forecast of Post Office revenue in the sub-post offices is fulfilled, we may be able to regard his statement as a fair compromise between a move towards economy and modernisation arid the needs of beneficiaries?
Is the right hon. Gentleman further aware that the attitude of the official Opposition and the nitpicking on their part is typical of opposition for opposition's sake and does great discredit to the House? No doubt we shall find Labour Members demonstrating at the Elephant and Castle before too long.

Mr. Jenkin: Some of them have done so already, although not on this issue. I am grateful for the hon. Gentleman's support. I believe that we have struck a fair balance and that it will be seen as fair in the country.

Mr. Charles R. Morris: I accept the Secretary of State's concern for administrative economy, but does he agree that his statement will sound the death knell for many of the 22,000 sub-post offices that provide such a real contribution to community services, especially in rural areas? If the £2 million fund proves inadequate, has he in mind to make more money available to sub-post offices? Will he say what the impact of this proposal is likely to be on the 1,800 Crown post offices, in terms of staffing and services?

Mr. Jenkin: The extravagance of the right hon. Gentleman's language is absurd. To talk about a possible 5 per cent. reduction in the business of the post office network spread over five years as the death-knell of sub-post offices is the language of lunacy. With the right hon. Gentleman's knowledge of Post Office affairs he should know better. We shall consider the matter with flexibility. My right hon. Friend will be monitoring developments over the next few years. We are confident that the £2 million fund will be adequate to deal with any possible hardship that may arise.

Several Hon. Members: rose—

Mr. Speaker: Order. I propose to call those hon. Members who have been rising in their places to question the Secretary of State.

Mr. Peter Bottomley: Will my right hon. Friend accept from the Government Benches, from one who was concerned about the forced transfer to four-weekly payments for those already receiving child benefit, that his compromise is a good one? May I ask him to confirm that he will keep the situation under review, so that if his expectation and mine turns out not to be right he can consider modifications? Finally, will he confirm that one could take the line advanced by the Opposition and ensure that all payments must be made through post offices, which would enable us all to throw away our cheque books?

Mr. Jenkin: We shall be keeping a close watch. I have no doubt that the regulations that we shall introduce to implement the scheme will include provision for dealing with cases of exceptional hardship if that should arise for any mother in receipt of child benefit. I find the contrast astonishing between the Labour Government's accepting in principle, and apparently cheerfully, the prospect of the switch—

Mr. Ennals: Choice.

Mr. Jenkin: They accepted a voluntary switch, which is exactly what we are doing, to payment into bank accounts. However, now that they are in Opposition they seem to be opposing root and branch and all along the line anything that is likely to take business away from post offices.

Mr. Ennals: Choice.

Mr. Jenkin: They demean themselves by their contradiction.

Mr. Harry Ewing: Is the right hon. Gentleman aware that there is a feeling, especially on the Opposition Benches, that he is concealing more than he is revealing? Where did the right hon. Gentleman get his information that sub-post offices have some sort of guarantee? Is he not aware that if the Post Office decides to close down a sub-post office neither he nor his right hon. Friend the Secretary of State for Industry can lift a finger to prevent the closure? Is he aware that all the new business that he mentioned is not new business at all? It is existing business that is presently administered elsewhere. For example, energy stamps are now sold at electricity board offices. It will be a transfer of existing business. If it is transferred from other establishments, surely that will have employment consequences in those other establishments.
I ask the right hon. Gentleman to come clean and to make it clear to the sub-postmasters tomorrow that their future, as my right hon. Friend the right hon. Member for Manchester, Openshaw (Mr. Morris) said, is dim indeed. This could spell the end for many of our sub-postmasters and their offices.

Mr. Jenkin: The only details that I am not at present at liberty to disclose in public concern further commercial negotiations in which the Post Office is currently engaged, which will widen still further the range of extra public sector business which will be available to the Post Office and to sub-postmasters. I am concealing nothing else.
I did not talk about a guarantee for sub-postmasters. I said that the 3,000 smallest sub-post offices have a minimum scale payment of £1,600. That is the present level. There is no doubt that we want to see an extension of business. If the hon. Gentleman genuinely believes that by greatly enlarging the outlets for a range of services—for example, energy stamps, bus passes and rail cards—we are merely dealing in a zero-sum game, in that what goes to one will be taken away from another, he is living in a dream world. It is not a zero-sum game. By offering the public wider opportunities to use these facilities we can confidently expect a growth in business.

Mr. Keith Best: Is my right hon. Friend aware that the rural sub-post offices in my constituency, which are critical to the local community, will welcome the Government's assurance that they believe in preserving the rural sub-post offices? How exactly did my right hon. Friend and his advisers arrive at the figure of £2 million? One welcomes the fact that there could be an upsurge in business. I note that the details of the way in which the £2 million will be allocated are yet to be announced and that they are subject to consultations. How is it that my right hon. Friend arrived at the £2 million figure? Was it based on a specific understanding that there would be a certain shortfall, or was it designed to deal with some other matter?

Mr. Jenkin: To a degree, one is dealing with guess work about the future, and it is a matter of judgment. These matters were carefully considered by my right hon. Friend the Secretary of State for Industry and the Post Office. That was their best judgment of what funds would be needed to enable the Government to back their assurances about the adequacy of the sub-post office network. However, as I said earlier, we shall watch the position carefully and we shall be monitoring it regularly. Obviously, we shall need to respond flexibly if it turns out that our forecasts have been belied by events.

Mr. Kenneth Marks: Will the right hon. Gentleman take another serious look at his decision to give no choice to new recipients of child benefit? They include some of the most vulnerable groups in the population, at their most vulnerable period. It is a disgrace that they should have to wait for seven weeks. The right hon. Gentleman ought to be shortening that period instead of making them wait for four weeks every time. Did he consult the Child Poverty Action Group? If so, what did it say?

Mr. Jenkin: We consulted the Child Poverty Action Group, although not on the point raised by the hon. Gentleman. I understand that it was happy with the opting-in process that I have announced for the weekly payments


for existing mothers. We are already protecting the most vulnerable, in that those on supplementary benefit and family income supplement—which now incorporates incomes of up to £70, £80 or £90 a week—and lone parents will automatically have the option of weekly payments. That goes a long way towards meeting the hon. Gentleman's case. Of course we shall look at this, and if there are particular hardships we may well need to take steps to deal with them. But I am confident that in Britain, as in the rest of Europe, the vast majority of mothers will be able to manage perfectly well on child benefit that is paid every four weeks. Those who have not been used to weekly benefit can perfectly reasonably be asked to go on to four-weekly benefit.

Mr. Robert Hicks: In view of the importance of the rural sub-post office network, what specific arrangements is my right hon. Friend making, both within his own Department and in his relationship with other Government Departments that have an influence on the pattern of economic and social life, to prevent this kind of anxiety from recurring?

Mr. Jenkin: I have every sympathy with what my hon. Friend said. I shall not easily forget the fury and anxiety aroused about a year ago when some quite misleading reports about what was in the wind gained credence. I shall be addressing the federation's annual conference in Scarborough tomorrow and I hope that I shall be able to allay any anxieties and deal with any fears that may still exist. My impression is that the federation will regard the compromise package as a pretty fair deal.

Mr. Robert C. Brown: Listening to the right hon. Gentleman's statement, it sounded as though he was much more interested in justifying the Prime Minister's poodle, Sir Derek Rayner, than in taking note of the representations against the proposals. Will he give the House a commitment that future claimants, post-1981, will have an immediate right to opt for weekly payment if there is a change in their circumstances, such as redundancy or unemployment? Will he undertake to consult his right hon. Friends to allow the Post Office to produce one-off payment stamps in units of 50p rather than the multitude of stamps covering energy, television licences, and so on, that currently exist?

Mr. Jenkin: I shall ensure that the hon. Gentleman's final comments are drawn to the attention of my right hon. Friend and the Post Office. I gave a fairly long answer and categorical assurance to the hon. Member for Stockport, North (Mr. Bennett) about the measures that we are taking to ensure that if circumstances change and people fall into one of the categories entitled to weekly payments they will be able to get payment as promptly as possible—if necessary, on an interim basis from a local social security office. That safeguard will exist, and we shall want to ensure it works properly.
If the hon. Gentleman compares the full report of the team advised by Sir Derek Rayner—which was published in conjunction with the Government's White Paper—with the proposals that I have now announced he will see that we have been more than flexible in responding to the anxieties put to us. The proposals that we will now introduce are markedly different, in a number of respects, from those put forward in the first report. It is rather unfair to say that we are being inflexible.

Mr. Tim Eggar: Is my right hon. Friend aware of the realisation outside the House that he made a personal commitment to ensure that proper care and consultation went into his statement? We are all grateful to him. Will local authorities be expected in any way to subsidise sub-post offices, and can sub-post offices expect to be permitted to act as agents for building societies?

Mr. Jenkin: I am grateful to my hon. Friend for his generous remarks. None of the figures that I have quoted involves any subsidies from local authorities. There is a statutory power in that regard, but in no way are we relying on it.
The National Federation of Sub-Postmasters and the Building Societies Association are urgently discussing the possibility of sub-post offices acting as agents for building societies, but I am not yet in a position to announce the outcome.
Clearly, there are some obstacles to such a move as building society deposits compete with national savings for money. That is a concern of my right hon. and learned Friend the Chancellor. It is equally clear that if a building society wants a sub-postmaster to act as agent it could bring in considerable additional business to the sub-post office concerned. It is, therefore, something that we would want to examine carefully.

Mr. Norman Atkinson: Contrary to what the right hon. Gentleman said, does not his statement apply only to those beneficiaries who have no bank account? All beneficiaries with bank accounts can continue to draw benefit at whatever frequency they so desire. Does that not confirm the class character of the Conservative Party? Secondly, how does the right hon. Gentleman propose to avoid legislation on this matter?

Mr. Jenkin: I assure the hon. Gentleman that there is no need for primary legislation. We can achieve what we want by a change in the regulations. The hon. Gentleman is mistaken. At present there is no facility for the payment of any of these benefits into bank accounts by direct credit. It is perfectly true that some pensioners receive their benefit either monthly or three-monthly in arrear, by an order that they must present to their banks.

Mr. Atkinson: What about the frequency of payment?

Mr. Jenkin: If people want to be paid less frequently than weekly they can ask to be paid either monthly or three-monthly. But that is not by direct credit. That is a new facility and an improved choice. It is our estimate that about 3½ million people will want to take advantage of it in the first instance. As the years go by I expect the proportion taking transfer by direct credit to grow steadily. That is a much more efficient way of making payments of this sort.

Mr. Buchan: This has been an extraordinary exchange. The right hon. Gentleman has succeeded in one short statement in endangering rural post offices, enraging all the groups concerned with child welfare, and causing hardship to millions of mothers. Are we right in thinking that this process of enraging some and causing hardship to others has been designed to save £7 million less £2 million to support the sub-post offices—in other words, to save £5 million?
Secondly, is the right hon. Gentleman not saying that the means of saving the sub-post offices by directing


business there must be at the expense of all other public sector—and now, apparently, private sector—employment? Finally, may I take him up on his comment about the demonstration at the Elephant and Castle? May I assure him that if he keeps up this standard he will get a demonstration?

Mr. Jenkin: I think there has been sufficient condemnation of the antics of the Opposition Front Bench—[Interruption.]—in parading with placards and shouting slogans in the street, like any of Arthur Scargill's rent-a-mob. The hon. Gentleman is merely demonstrating his refusal ever to want to change anything.

Mr. Norman Atkinson: May I ask the Minister to withdraw insulting remarks of that sort? What has Scargill's rent-a-crowd got to do with questions of this sort?

Mr. Speaker: Order. I have heard much worse exchanges in this Chamber.

Mr. Jenkin: The hon. Gentleman is being absurd. In fact, the savings are over £30 million on the whole packet that I have announced today. The savings that will be achievable in the administrative proceedings for paying child benefits are savings that we need to have—which it is right to have. If we listened to the right hon. Gentleman, nothing would ever change. It seems to me that his is a recipe for total stagnation. No wonder his party lost office.

Following is the information:
Changes in DHSS administrative procedure which will result in an annual saving of some £13 million by 1987–88.
Computer-produced order books are being standardised at 20 weeks. (They were 12, 13, 18 weeks.)
Payment of invalidity benefit and sickness benefit is being combined with payment of supplementary benefit.
The level at which evidence of identity is required when cashing a Girocheque is being increased from £30 to £50.
The foil limits on order books have been raised to realistic levels to avoid issuing two books. They will be reviewed each year.
The period for implementing nationally the DHSS local office computer system is being reduced from four years to two years subject to reconsideration following the pilot study.
Retirement and widows' pensions of less than £1 a week will be paid annually in arrears.

STATUTORY INSTRUMENTS &c.

Ordered,
That the draft Sheriff Courts (Scotland) Act 1971 (Summary Cause) Order 1981 be referred to a Standing Committee on Statutory Instruments, &amp;c.—[Mr. Donald Thompson.]

House of Lords (Elections)

Sir Brandon Rhys Williams: I beg to move,
That leave be given to bring in a Bill to provide for the election by proportional representation of certain members of the House of Lords; to provide that only the members so elected shall be qualified to take place at intervals of five years; to make other provisions for the elections; and for connected purposes.
The public are uneasy about the present state of the British Constitution. It is obvious that there is difficulty for both Houses in providing an effective check on the growing power of the Executive. I think it is also clear that the change in the nature of the party structure has brought to the fore a feature of the electoral system, which is the difficulty for minorities of getting a fair measure of representation in the House of Commons. This has led to a feeling of frustration among many electors and to pressure for a change in the electoral system. I think, too, that we must all be aware of the slow decline which has been taking place in this century in the status of the House of Lords, which barely has the confidence now to exercise the limited powers it still has.
There are many possible ways of reforming the Upper House and there are many possible ways of introducing proportional representation. In fact, there are too many. Of course, the strength of our constitution is that it has grown organically. The public are suspicious of experiments, so there has been much discussion about the reforms that are needed in our constitution, but we are making little or no progress in matching the mood of the electors with practical plans for reform. My Bill is an attempt to make proposals which are quite specific, which would be effective, but which would involve the absolute minimum of change.
Obviously the Lords contains a strong hereditary element. What weakens it as a legislative body for many people is the continued right to vote of the peers by succession, particularly those who do not regularly attend. I do not deny the value of the hereditary principle: it would be as foolish as to say that a man can no longer learn anything from his father. The system of primogeniture used to give a man who inherited his father's estates real power which the Crown had to attend to, but that is no longer the case. The public does not accept that succession to a peerage automatically gives a man the right to challenge an elected Government, based on a majority in the Commons, even if it was only elected by a minority of the voters.
Then there is the nominated element, that is to say, the life peers, the judges, the bishops. Of course they include many people of distinction and influence. It is right that our constitution should provide them with a forum. In an earlier Bill I made the suggestion that only the life peers should in future be allowed to vote, so that in effect the power of the Second Chamber to challenge legislation would lie with the nominated Members only. Some Members, I know, favour the idea of a nominated Upper House, but I am convinced it would be ineffectual and unrepresentative. We have to base the power of a reformed House of Lords on election, like the Senate in the United States and in the majority of other democratic countries.
To abolish the present House and to set up an elected senate instead would, in my opinion, be too drastic a change. We do not want to lose the contributions of the Members of the present House who have something of


significance to say, and it is extremely important in our constitutional reform that we should safeguard continuity. I am therefore recommending that we should introduce into the present House of Lords an elected element without excluding those who do not choose to stand, or perhaps do not get elected.
Some years ago Lord Home's committee suggested that a minority of the House should be drawn from the existing Members by some system of selection and that they should then have equal rights with an elected majority. This proposal has the advantage that it does not create two classes of Members, but in my view it has the fatal flaw that the voting pattern in the Upper House would be decided by the selection process and not by the election process.
It so happens that Lords have themselves evolved procedures which accept the principle that there should be two classes of Member—that there should be voting and non-voting Members in certain activities of the House. I could point obviously to the fact that only the Law Lords participate in matters which directly concern the activities of the Courts. Even to the end of the nineteenth century that was not invariably the case, but it has certainly become the rule now. So in matters of law the Lords themselves have evolved the principle that there should be two classes of Member.
I understand also that on the Select Committees of the Lords it is the custom that anyone may speak who chooses to do so, but that only certain nominated Members are entitled to exercise a vote. In proposing, therefore, that the right to vote on questions of legislation should be limited to the elected Members, which is the principal element in my Bill, I am not suggesting an altogether new departure. I am not, of course, recommending any change in the powers of the Lords, which in effect are to hold up legislation for about six months and so to force the Government of the day to think again.
As to the elections themselves, I suggest that the term of election should be fixed for five years. I do not think that we should allow the Lords to be dissolved at the discretion of the Prime Minister of the day. I suggest that there should he not more than about 250 elected Members. We do not want to swamp the existing House. I also envisage that, in the first instance, the majority of the candidates who get selected for the winnable seats would be Members who are known to have been active and successful Members of the existing House, so that one would not be adding as many as 250 completely fresh faces. One would really be giving the power to vote on legislation to those Members who are already known to be most active and respected in the existing House.
I also recommend that the election should be by a system of proportional representation, although I recognise that that is not an essential element in the proposal. I think that it would have the distinct advantage that the composition of the upper House might well be different—and probably would, in present circumstances, be different—from that of the Commons. We do not want to make the House of Lords into an echo-chamber of the Commons, on the lines of the disastrous Crossman proposals which this House rightly rejected some 10 years ago.
I also recommend that there should be about 80 constituencies, with three Members in each. As I understand it, the single transferable vote system gives

reasonable proportionality, with three-Member constituencies, without giving the party machines too much power to exclude people of independent mind, as the party list system would tend to do. Yet it would not open up the possibility of a chaotic party structure emerging in the House of Lords, including perhaps freak or anti-democratic elements.
I know that some people in this country are nervous of proportional representation because they think that it would allow extremists, of Right or Left to gain a foothold in one or other House. But as I understand it, in three-Member constituencies candidates would have to score at least 25 per cent. to be elected. It might well be convenient to use the constituency boundaries already drawn up by the Boundary Commissions for the European elections.
My Bill has been drafted with the help of experts on the workings of the Lords and on electoral reform. It would strengthen the Lords without making decisive government impracticable. It would introduce proportional representation without interfering with the tradition that the Government is founded on a majority in this House, elected in the usual way.
I believe that it would help to focus the debate on constitutional reform inside and outside this House if there were in print a specific recommendation on this subject. I realise that there must be much more debate, but at least I hope that the House will give me leave to introduce my Bill this Session.

Mr. Speaker: I understand that the hon. Member for Orpington (Mr. Stanbrook) wishes to oppose the motion.

Mr. Ivor Stanbrook: I desire to oppose the motion, Mr. Speaker.
There is a case for the reform of the House of Lords, but the reform proposed would be disastrous. My hon. Friend the Member for Kensington (Sir B. Rhys Williams), in his well-meaning and somewhat unworldly way, is leading us on to the path towards the destruction of this ancient institution of ours. He perceives that this ancient institution is somewhat unwell and his treatment for it is a dose of medicine to which it is unaccustomed—namely, democracy—and which is likely to kill the patient.
This honourable House of ours has, for more than 700 years, been the only elected Chamber of this Parliament. Indeed, the history of our democratic government has been the story of the evolution of this place to its present position of predominance in our constitution.
We are elected from our 635 constituencies at frequent intervals. We try to be in close touch with all our constituents. We reflect the contemporary need and the popular will.
The House of Lords, however, is none of these things, nor should it be. That is not its function. We owe it a tremendous debt for the magnificent way in which it has served our country over the centuries. It has brought to bear on great broad issues a cool, dispassionate examination. It has brought to bear upon our legislation detailed, expert and experienced consideration. It serves this country well.
But none of those attributes is due to the Lords being elected. None of them is due to any democratic nonsense. Its very strength is its independence. Its members are not beholden to anyone. They can disregard the public


clamour. They can consult only the public will. The Lords can, in a more unprejudiced fashion, away from the public clamour, assess the public good.
It is true that there is a need for some reform, but the introduction of politicians into the other place in recent years has not noticeably improved its quality. It is true that the numbers of those who attend may need pruning. Many are not interested in, and do not understand, its proceedings, nor do they desire to take part in them.
Equally, we need to bring into the other place, at least for the time that they hold office, the great leaders of our modern corporations, including the trade unions and the unestablished Churches, so that they can play their part in the deliberations of the upper House in the way that our best judges do. But none of those people would be brought in if they had to participate in elections like squabbling politicians. Yet we need them.
Clearly, we need a House of Lords. We need a revising Chamber. The present one does that job very well and should only be improved, but it cannot be improved by vulgarising it.
For those reasons, I ask the house to reject the motion.

Question put, pursuant to Standing Order No. 13 (Motions for leave to bring in Bills and nominations of Select Committees at commencement of public business:—

The House divided: Ayes 61, Noes 137.

Division 178]
[4.27 pm


AYES


Alton, David
Miscampbell, Norman


Ancram, Michael
Morrison, Hon C. (Devizes)


Atkins, Robert(Preston N)
Myles, David


Baker, Nicholas (N Dorset)
Needham, Richard


Benyon, Thomas (A'don)
Owen, Rt Hon Dr David


Benyon, W. (Buckingham)
Parris, Matthew


Best, Keith
Patten, Christopher (Bath)


Blackburn, John
Prentice, Rt Hon Reg


Bottomley, Peter (W'wich W)
Price, Sir David (Eastleigh)


Bradley, Tom
Rathbone, Tim


Brocklebank-Fowler, C.
Roper, John


Colvin, Michael
St. John-Stevas, Rt Hon N.


Crouch, David
Sandelson, Neville


Dempsey, James
Shersby, Michael


Dorrell, Stephen
Smith, Cyril (Rochdale)


Ellis, Tom (Wrexham)
Squire, Robin


Fisher, Sir Nigel
Steel, Rt Hon David


Fletcher-Cooke, Sir Charles
Temple-Morris, Peter


Fox, Marcus
Thornton, Malcolm


Freud, Clement
Viggers, Peter


Grimond, Rt Hon J.
Wainwright, R.(Colne V)


Heddle, John
Waldegrave, Hon William


Howells, Geraint
Watson, John


Hunt, John (Ravensbourne)
Weetch, Ken


Johnston, Russell (Inverness)
Wigley, Dafydd


Kilfedder, James A.
Wilkinson, John


Kimball, Marcus
Wilson, Gordon (Dundee E)


Knox, David
Wolfson, Mark


Lennox-Boyd, Hon Mark



Lewis, Kenneth (Rutland)
Tellers for the Ayes:


Lyell, Nicholas
Mr. Tim Renton and Sir Brandon Rhys Williams.


Lyons, Edward (Bradfd W)



Maclennan, Robert

Question accordingly negatived.

Orders of the Day — Finance Bill

(Clauses 1, 4, 19, 23, 27, 29, 88, 89 and 122; and schedules 1, 2 and 11.)

Considered in Committee [Progress 11 May]

[MR. BRYANT GODMAN IRVINE in the Chair]

Clause 88

REDUCTION OF LIFETIME RATES

Question proposed, That the clause stand part of the Bill.

Mr. Robin F. Cook: To hon. Members with aesthetic sensibilities, there is a certain pleasing contrast in the way that we have moved from the taxation of the unemployed and strikers to the question of the taxation of the Duke of Westminster. Yesterday the Committee was asked to increase the tax burden on the unemployed and strikers and to provide the Treasury with a special power to withhold tax refunds to those groups of the low-paid. Today the Committee is asked to slash the rates of tax the next time the Westminster estate changes generation.
It is appropriate that the Committee should begin by reflecting on the social priorities of the Government which make such a contrast and on what such a contrast tells us about their general fiscal policy. Yesterday the Financial Secretary produced a totaliser in which he gave a cumulative figure for the cost of Opposition amendments to date. If I remember his figure correctly, it was some £4 billion.

The Minister of State, Treasury (Mr. Peter Rees): No—£4,250,000,000.

Mr. Cook: I omitted the £250 million.
I shall not again go through the general argument which we had on that issue. I am pleased to see that the Treasury Bench is keeping the accumulator running in tandem with our amendments. When the next election comes, I hope that the Financial Secretary will tell the electorate of his pride in the achievement during the passage of the 1981 Finance Act, in the course of which the Treasury Bench used its majority to protect the revenue of the Treasury, increase it by £4,250 million and protect it against the irresponsible amendments of the Opposition who sought to prevent the nation's tax burden from going up.
Let us be clear about the thrust of the amendments we have already discussed. It has been not to cut taxes which existed when the Conservatives came to office, not even to cut taxes which existed before Treasury Ministers opened their little red boxes and discovered what was in the Budget, but to prevent taxation from going up to a figure even higher than it was before March 1981, let alone March 1979 when we left office.
Our amendments are designed to prevent income tax from being increased by the back door by the failure to revalorise the tax thresholds because the Prime Minister lacked the courage to increase income tax by the front door

by putting up the rates. Our amendments are designed to avoid the new burdens on the unemployed and strikers by bringing them into the tax net for the first time.
We have been told in the course of debate on the amendments that is is necessary that these new tax burdens should be placed on the low-paid and the unemployed on the ground of fiscal prudence and because of the expense of keeping two-and-a-half million people idle. I began to get the impression at one stage yesterday that the Financial Secretary was getting a positive pride out of being the Minister who is responsible for a 10 per cent. increase in the nation's tax burden expressed as a percentage of GDP. I hope that he will show that same pride to the electorate at the next general election.
Having debated these matters in the past, when we have been consistently told of the need for a responsible attitude to increasing the tax burden and the Opposition's frivolity in resisting that increase in the tax burden, today we are dealing with a clause in which the tax on inherited wealth is dramatically cut. The Opposition oppose that cut. I very much hope that the Chancellor of the Exchequer will deduct the saving that the amendment would represent to the Treasury from the cumulative total that he is working out for presentation at the conclusion of the passage of the Finance Bill. I hope that he will be precise in the figure he gives to us on the credit side of the balance sheet.
There is a curious coyness in the Red Book about how much the relaxation of taxes on capital transfer will cost. In table 2, a figure is given for the cost of the clause—£4 million in a full year. Other figures are given against the relaxation in the capital transfer regime provided for in subsequent clauses of which this clause is the first part. The total value of the figures given in the Red Book is £20 million. Clause 89 deals with the limit on the cumulation period to 10 years. In the table on page 10 of the Red Book there is the letter (i) which refers to a footnote which states "Cannot be estimated".
My hon. Friends who were in the Chamber yesterday will remember that there was a precision about the Government's calculation of the cost of Opposition amendments. Yesterday the Chief Secretary rebutted my amendment which would have relieved strikers of the payment of taxation on the supplementary benefit they received. The Chief Secretary said that the amendment would cost £130 million. He admitted that the figure was speculative. He was not sure how many strikers claimed supplementary benefit, but he thought that about one-third did. We were talking of long-term strikers who were not defined, and there was a certain vagueness about the way in which the calculation was made, but the figure was precise. It was not £125 million, not £150 million; it was £130 million.
Although the Treasury can be precise about the revenue obtained by taxing the striker, when we press for figures on what it will cost to extend relief to those who pass on inherited wealth we are told that it cannot be estimated. I assure the Committee that the effect of this part of the Bill, of which this clause forms the keystone, will be to reduce the revenue received by the Treasury from the taxation of capital transfer. That is inescapable, and I think I would carry the Minister with me in saying that.
It is therefore appropriate to review briefly the history of the taxation of capital transfer over the past decade or two. Over the past decade the revenue received by the


Treasury from the taxation of capital transfer has declined, whether expressed as a percentage of total receipts or as a percentage of GDP. Even in cash terms it has declined.
In 1972 the Treasury received £482 million from death duty. Ten years later in the past financial year the Treasury received £415 million. I do not give figures adjusted for inflation; I give crude cash figures. If we were to adjust that figure for inflation, we would have to allow a reduction of two-thirds, so that in real terms the revenue from the taxation of capital has gone down by two-thirds in 10 years.

Sir Charles Fletcher-Cooke: Is the hon. Gentleman taking into account the large concession which the right hon. Member for Leeds, East (Mr. Healey) gave on capital transfer to a spouse? This must have deprived the Inland Revenue of an enormous amount of money. I do not grumble about that; I think it is quite right.

Mr. Cook: I am not making any party point in the review I am making. I said that the revenue from the taxation of capital transfer had declined over the past decade and I was coming on to the point the hon. and learned Member for Darwen (Sir C. Fletcher-Cooke) referred to, because it is highly relevant to the proposal further to reduce the rates on capital transfer. The hon. and learned Gentleman is correct. The Labour Government played their part in reducing the taxation derived from capital transfer. When capital transfer tax was introduced by the Labour Government, the seven-year exemption which obtained on death duty was abolished. The effect of the seven-year exemption from death duty was to render estate duty more or less a voluntary tax, paid only by those who disliked their heirs even more than they disliked the Inland Revenue.
It was, therefore, entirely reasonable of the Labour Government at the time when they abolished the exemption and brought in capital transfer tax—which represented a tax on cumulative gifts throughout lifetime and at death—to examine whether other adjustments should be made to the tax regime. Two major adjustments were made, to one of which the hon. and learned Member for Darwen referred. The other was the reduction in the rates for transfers of less than £310,000. That was perceived at the time, rightly or wrongly, as a reasonable and right quid pro quo for the abolition of the exemption period. I am pleased to see that I carry the hon. and learned Gentleman with me.
However, in a subsequent clause, the Bill restores the principle of an exemption period. The Bill brings back into tax law the principle that so long as one carries out the capital transfer sufficiently far in advance of the date of death that will not be included in the full rate of death duty. The cumulative principle is destroyed by the Bill.
That brings me back to the point perceptively raised by the hon. and learned Member for Darwen. As the rates were reduced, and as the exemption for transfers between spouses was created as a quid pro quo for the abolition of the exemption period, surely one could argue that when that exemption period is restored, as is done in the Bill, the rates should revert to where they were when the exemption period was abolished. The rates should revert to where they were when the special arrangement was made under the 1975 Act to treat all transfers as

cumulative over the life-time. That could be put forward reasonably on that basis, were we in order to put forward an amendment increasing a charge.
Far from proposing that the rates should revert to where they were when the exemption period last obtained and not even leaving them where they were before the Bill was introduced, once again importing into tax law the principle of an exemption period, it is striking that in addition to restoring the exemption period, this clause will once again cut the rates which operate.
What possible justification can there be for simultaneously recreating the exemption period and cutting the rates and increasing the extent to which we were generous to those who carry out capital transfers when we abolished the exeption period?
My hon. Friends who were in the Committee yesterday heard the Financial Secretary, in response to the debate on strikers' pay, enunciate three general grounds for creating new taxation. I believe that the Minister of State missed that pleasing passage in his colleague's speech. It might be as well for the tranquillity of his thoughts about the fiscal purity of his Government that he missed the reasons which were adduced by the Financial Secretary for fresh taxation. I shall reiterate them for his benefit.

Mr. D. N. Campbell-Savours: One of the reasons was malice.

Mr. Cook: Let us be fair and objective. The Financial Secretary did not say that one of the three reasons was malice. He gave three reasons why the new taxation was legitimate: first, that striking was voluntary; secondly, that striking damaged the economy; and, thirdly, that strikes were aimed to increase income. He said that those were three cogent reasons for imposing a new tax burden.
Let us apply those three laws of fiscal policy adduced by the Financial Secretary to the proposal in the clause not to increase the tax burden, but to reduce it. Does the converse of those three principles apply in this case? Are we to be told as a justification for reducing the rate of tax on capital transfer that inherited wealth is not voluntary but involuntary? Are we to be told that if the Duke of Westminster had been given freedom of choice and freedom of his own volition he might have chosen to be born the son of a poor man who would have had to strike to increase his income? Are we to be told that as a matter of ill luck he was born to inherit a large slice of London and that he was stuck with the revenue which came from it and that every time he was not looking his father shovelled another bucketful of the stuff across the table towards him? Are we to believe that that was a wholly involuntary act and, therefore, he should be relieved of part of the taxation that fell on him before the Government came to office?
One of the reasons why there is a popular sentiment in favour of taxing capital transfers is the arbitrary nature of inherited wealth. Because it is arbitrary, there is a popular sentiment that it is entirely appropriate that it should be taxed more heavily than the income for which people must work and which they must earn by their own efforts.

Mr. Sydney Bidwell: It is a typical Tory assumption that strikes are about improving income. I believe that that would be in the minority of circumstances which lead to strikes. Often it is a matter of removing a pig of a manager. It is nothing to do with increasing income.

Mr. Cook: I defer to my hon. Friend's knowledge of those matters. I do not believe that he would allow me to be tempted back to a general review of yesterday's debate. I assure him that those of us who participated in that debate were well aware that there were considerable misconceptions on the Conservative Benches about why some men felt driven under compulsion to strike.
The Financial Secretary's second. reason for the justification of a new tax was that strikes damaged the economy. Therefore, will we be told that capital transfers should be relieved of a large part of the tax which is due on them because they benefit the economy? If so, that will be a highly contentious claim.
All hon. Members agree that the performance of the British economy over the past century has been sluggish. It has not been particularly impressive compared with some of our international competitors. It is one of the characteristics of the British economy and British society that over that century gross inequalities and inherited wealth have persisted despite the oppressive taxation of capital transfer which has often been alleged by Conservative Members.
International comparisons in those matters are difficult because of the different ways of calculating wealth. However, those who have studied the matter generally come to the conclusion that there is evidence to suggest that the distribution of wealth ownership in Britain is more unequal than, for example, in France or in the United States. They conclude that part of our poor performance may be traced to the gross inequality of wealth holdings which arise from our inability to redistribute them among a wider section of the population. It would not be surprising if that were so.
A number of economists have commented on the damaging effect of inherited wealth and the gross inequality which that creates. For instance, I have a characteristically trenchant quote by Maynard Keynes, who observed:
The hereditary principle in the transmission of wealth and the control of business is the reason why the leadership of the capitalist cause is weak and stupid. It is too much dominated by third generation men.
I realise that Maynard Keynes is not held in high reverence by Conservative Members. I shall give them a quotation from a distinguished fellow Scot of the previous generation, Andrew Carnegie, who spent the earlier part of his life acquiring a fortune such as is not seen these days and the latter part of his life inveighing against the iniquity of inherited wealth and dissipating that fortune so that it would not be inherited by his descendants. He said that leaving fortunes to families was
most injudicious and liable to do more injury than good to the recipients.
At first hand we have a tribute to the dangers which can arise and the damage that can be done by the principle of inherited wealth giving rise to gross disparities in wealth distribution.
The problem is that gross concentrations of wealth reduce the incentive to ensure that that wealth is put to the purpose which would give optimum income. The people who hold large concentrations of wealth are not under the same incentive to make sure that it is put to productive use as those who hold small concentrations of wealth. I am not a Londoner. Perhaps when the Minister responds he will say that the large holdings of the Duke of Westminster have been entirely in the interests of the development of London and the prosperity of its people. However, I can

speak with some authority for Scotland. In my country there are vast wildernesses in the Highlands and moors which are kept that way because the wealthy who own those moors do not require to obtain the return on their income which an ordinary farmer or smallholder would.
Those moorlands are preserved as wildernesses by families such as the Vesteys, either as a tax dodge or as a pleasure ground in which they can play. There is a repeated conflict between the interests of those who own that wealth and the moors and of those who live on them, who would want to obtain their living from developing that land but who are discouraged from doing so. Those wildernesses will be assisted in their preservation by the clause, which will reduce the rate of tax which will fall due when those vast estates change hands between generations.
The Financial Secretary said that the third reason for the new impost was that strikes were about increasing income. By the same token, far from cutting the rate of tax on capital transfer the Government should be increasing it. Inherited wealth confers a handsome income that is secure against the threat of redundancy. I am prepared to wager that the present or the next Duke of Westminster will riot be drawing unemployment benefit, liable to taxation, with the Treasury withholding his tax refund. He not only enjoys a large income from the capital transferred; he also enjoys greater security than those who have to work for their money. It is, therefore appropriate that he should pay a higher rate of taxation.
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How can be explained the contrast between the Government's petty and vindictive attitude to strikers and their warm and generous attitude to the Duke of Westminster in this clause? Capital transfer tax is not particularly oppressive. The exemptions are generous. Last year the Treasury doubled the exemption level: it went up to £50,000. The Minister of State observed to the London Society of Chartered Accountants that the effect of doubling the exemption was to remove from any liability to capital transfer tax two-thirds of the transfers that had previously come under the tax.
The exemption is even more generous than it first sounds. There is also an exemption for transfers between spouses. A father can give his son £50,000 exempt from tax and simultaneously give his wife £50,000 exempt from tax, and she can pass the sum on to the son exempt of tax, so in one day he can obtain £100,000 exempt of tax. Under clause 89, a family could repeat that operation free of tax every 10 years. Not many of my constituents will he able to do that, although it is curious that the Government appear to believe that a large slice of the population is bothered by the oppressive taxation of wealth.
At the 1979 election, my Conservative opponent debated with me in the Grassmarket, which comprises Victorian tenements with a small amount of council housing. It is notorious for its three large lodging houses, where 1,000 homeless men sleep. I pay tribute to my opponent for bearding me in a stronghold that Labour has not lost within living memory. He started by saying that it was his solemn duty to warn people that if the Labour Government returned to office they would impose a wealth tax on holdings of over £150.000. He may have felt that the warning was having no effect, because he tried to rub


in the point by saying that £150,000 may sound a lot but that it would not even buy an 80-acre farm. At that point I knew that my seat was secure.
I doubt whether a single resident of the Grassmarket is likely to exhaust the exemption provided in last year's Finance Bill. Indeed, I should be surprised if I had a single constituent who was, with the possible exception of the hon. Member for Edinburgh, West (Lord James Douglas-Hamilton), who I am of course honoured to have as a constituent.
It is striking that the exemption remains unchanged in this year's Finance Bill. The modest holders of wealth only slightly in excess of £100,000 do not benefit from the relaxation in clause 88. Only those at the top will hit the jackpot. One would have to reach £110,000 before starting to benefit from the reduced rates in schedule 11, but thereafter the savings are generous.
If a man is transferring £1 million to his son, or he and his wife are concurrently transferring £2 million, the rate of tax is cut from 70 per cent. to 45 per cent. If a man is transferring £2 million to his son, or he and his wife are concurrently transferring £4 million, the rate falls from 75 per cent. to 50 per cent. The savings are startling. My hon. Friends and I are not accustomed to making calculations on bank accounts of that magnitude, so I tell them that on the first transfer of £2 million the saving would be £445,000, which is as much as many men could hope to earn in a lifetime. If another £2 million remains in the kitty, the family can do the same again 10 years later with the same saving.
I am struck by the fact that in his Budget speech on 10 March the Chancellor of the Exchequer stated:
In a year in which we can give no income tax relief, I cannot make major changes in capital taxation."—[Official Report, 10 March 1981; Vol. 1,000, c. 778]
I understand his reticence. We understand why he felt obliged to assure the House, when he could not up the threshold by a single penny, that, equally, he could not afford to relax the tax on capital transfer. However, this clause shows that the Chancellor has been able to afford major changes in capital taxation. He has made generous reductions in tax for a very limited group. I do not know what justification the Government will give for that, but when the Chancellor says that he cannot afford to raise tax thresholds and so has brought into tax for the first time 1,200,000 low-paid people and is imposing tax on the unemployed and strikers, it is an insult to those people to give such largesse to the Duke of Westminster. We have failed to save the low-paid and the unemployed from taxation, but at least by voting against clause 88 we can try to save them from that insult.

Mr. Clive Soley: My hon. Friend the Member for Edinburgh, Central (Mr. Cook) made a constructive contribution to the debate. The Government have said that they could not afford the amendments that we put forward, but this provision, among many others, concerns one area in which they could have saved money.
We may owe the Government an apology. My hon. Friend has patiently and kindly pointed out why it is wrong to add the cost of all our amendments together to reach a glorious total of £4,000 million. He explained that each amendment stood on its own, but the Government appeared unable to understand that basic fact of

parliamentary life. It has now dawned on me that perhaps they do not know that the amendments have not been passed. We thought that they knew what was happening. In one way they know exactly what is happening. They know what their taxation is aimed at. They are taking from the poor and giving to the rich. It is a reversal of the Robin Hood principle.
Concern about the public sector borrowing requirement leads to expenditure cuts and a resultant rise in tax rates on real income. As indirect taxes are also being raised, a cut in capital transfer tax needs to be thoroughly justified, and there is no such justification.
Wealth is even more unequally distributed than income. Since I have already complained about the unequal distribution of tax on income, I complain even more strongly in respect of tax on capital. There is some evidence to suggest that the distribution of income is slightly more even in the United Kingdom than it is in the United States or Canada. However, for wealth the reverse is true, and the top slice of the population owns a larger share of wealth in this country than does its counterparts in North America.
Estimating at current prices the value of wealth that was at some time transmitted—given or inherited—and expressing it as a fraction of total personal wealth, leads one to suggest that about a quarter of all wealth is transmitted. The proportion is much higher for the top 1 per cent. of the population than for those lower down the scale. When the owners of large amounts of wealth die that wealth is largely retained by the relatives, and that is the main problem that we face with the clause.
In 1976 the top 1 per cent. of the population owned 25 per cent. of the wealth. The bottom 80 per cent. owned 23 per cent. It is on that basis that we must make a moral judgment on the clause. Share and land ownership is a characteristic of the wealthy. The top 1 per cent. of the population owns 54 per cent. of all shares held by individuals. The pattern of ownership of land other than for housing is not dissimilar. Since the 1920s the share of wealth held by the top 1 per cent. of the population has become much smaller, but this Bill, unless amended, will, at best, slow that process and, at worst, reverse it.
On 14 March the Financial Times, discussing the change of perspective for the transfer tax, stated:
The Capital Transfer Tax changes in this and the previous Budgets go far to reverse the trend to a more even distribution of wealth which has been a notable feature of the twentieth century.
The Government are doing that while taking more in taxation, direct and indirect, from the poorer sections of society, saying that it is necessary for economic reasons.
One of the questions that those in the poorer sections of society are legitimately entitled to ask is, if it is necessary for them to make that sacrifice, why is it unnecessary for those who previously have fallen into the capital transfer tax net to do so. The clause provides for the surreptitious abolition of capital transfer tax. When I see figures such as those that underlie the clause I can well understand why the Government chose to terminate the study on the distribution of income and wealth. That was one of the first things to get the chop when the Government came to power.

Mr. D. N. Campbell-Savours: To hide the truth.

Mr. Soley: My hon. Friend is right. The truth was painful. Above all, the distribution of wealth and the ownership of capital were so grossly and unfairly distorted as to lead to the type of economic and social problems about which even Conservative Members complain when those problems manifest themselves in the form of the class struggle, strikes and so on. However, the Conservatives refuse to tackle the root of the problem. There is no way, without being guilty of applying double standards, in which they can justify, economically or morally, reducing the tax bill of the wealthy, as my hon. Friend the Member for Edinburgh, Central (Mr. Cook) explained, while imposing a heavy burden on the lower paid.
The Treasury economic progress report of last month puts the capital transfer tax concession under the heading
Developing the small firms sector".
That is one way of covering up what the Government are doing. The arguments are all about encouraging employment and easing the transfer of family businesses to children. The problem is that the concessions apply generally, not just to businesses, and they go far beyond relief to small businesses because many of the businesses that will get relief are quotable on the Stock Exchange since they have a value of £4 million or more.
In farming, the agricultural landlord receives the biggest concessions, but the farming is done by the tenant. That was why the Labour Government did not extend working farmer reliefs to the agricultural landlord. We know that the tenant farmer might need the money, whereas the agricultural landlord was in a different position. The quality of the farming makes no difference to the landlord. The important factor is the person who is doing the farming. He may be entitled to relief, but the agricultural landlord should not benefit, as he will under the Bill.
Watering down capital transfer tax to the point of extinction is a classic case of the Tory Party paying its debt to the Country Landowners Association. The association is being so embarrassed by its self-interest that it is trying to dress up the argument to pretend that in some way the Government's action is of benefit to the farmer or the community. That is the classic argument of the parasite who finds a reason to exist as he does while relying heavily on others to do the work. The tragedy is that it adds to the bitterness and resentment that people feel about the inequality of wealth distribution.
In effectively abolishing capital transfer tax the Chancellor has moved back to the old estate duty that it was intended to replace. On 14 March this year The Times stated:
It seemed that CTT had at last been converted back into estate duty, at least in some important respects. For many people the tax on their estates will be almost wholly avoidable if they start planning early enough.
That is precisely what my hon. Friend the Member for Edinburgh, Central said. Charges will no longer be accumulated over a person's lifetime—only over the last 10 years before death compared with seven years under the old estate duty.
My right hon. Friend the Member for Leeds, East (Mr. Healey) said in his Budget speech in March 1974:
Nothing is more offensive to the vast majority of ordinary taxpayers, most of whom are subject to PAYE, than the knowledge that people far better off than themselves are avoiding taxation by exploiting loopholes in the existing law. If the

existing estate duty operated effectively, the great concentrations of private wealth would already have been broken up and with them many of the unfair advantages enjoyed by generation after generation of the heirs and relatives of wealthy men. In practice, however, the estate duty has always been a largely avoidable, indeed, a voluntary, tax. In particular, it does not bite on transfers of wealth made long enough before death to fall outside the charge. My first priority is to remedy its defects."—[Official Report, 26 March 1974; Vol. 871, c. 313–4.]
We all acknowledge that the return on that tax was not as great as had been hoped or as it should have been. I am sure that the Minister will refer to that in his contribution. That is not an excuse for abolishing CTT or watering it down in the way proposed, however. It is a reason for reforming it. There is no indication in the Bill that that will happen. The only indication is that the very wealthy will benefit from extensive tax avoidance provisions which are not available to the majority of the population.
As my hon. Friend the Member for Edinburgh, Central has pointed out, it will now be possible to make tax-free gifts of up to £50,000 per donor every 10 years. A husband and wife could therefore leave £100,000 to a child every 10 years.

Mr. Campbell-Savours: Will my hon. Friend suggest to the Minister of State that it might be in order for him to qualify what is in the Red Book and give some indication of how much money is involved? We should know how much the Government are giving to the very rich.

Mr. Soley: That is a good point. I hope that the Minister will come forward. I expect that the Conservative Benches will give us what they have given us in the past few days, namely, hardly an answer other than that from the Minister. He has made plaintive excuses for the economic necessity of their actions. I shall be interested to see how Conservatives justify tax handouts to the rich, given that in the past few days they have justified increased tax burdens on the poor.
Our amendments have tried to undo some of the Budget's harm. Ultimately, if we want a more equitable system we must tax gifts and bequests. There is strong evidence to show that those who die wealthy have inherited large amounts of money. That is a key factor. For many years, wealth has been passed on in the form of inherited wealth. Several effective studies have been made of that. It is obscene to allow such wealth to go untaxed, year after year and generation after generation, when the ordinary people are being asked to make enormous sacrifices.
Some form of wealth tax is needed. I would be the first to acknowledge that there are difficulties with a wealth tax. I should love to hear what the Minister thinks. We should consider an annual tax on consumption and gifts. The person receiving the gift should be taxed on it. That might be an impressive step forward and might break the continuity of wealth-holding. In other areas such a tax has been referred to as a lifetime expenditure tax. I am not convinced by all the arguments, but there is some merit in them. There is certainly no merit in abolishing, in effect, capital transfer tax. Both subjectively and objectively we know that some people are much more wealthy than others. That must be justified. Some Conservative Members still fall back on the old argument that the rich are necessary for capital investment in industry and the regeneration of wealth. If there were some evidence to that effect the argument might be impressive.


However, there is virtually no evidence. As we now know, most investment comes from large organisations and trust funds and does not come from private capital. There is no reason to believe that the money that is repaid to the wealthy will be ploughed back into the economy in order to produce more wealth.
No better example could have been given than that of the large estates in Scotland. They benefit no one but the owner, despite the fact that the areas involved suffer from all the problems of rural poverty. The Budget punishes the poor but rewards and protects the rich in areas such as capital transfer tax. The Tory Party, which has a reputation for doing that, has won back its reputation for being the party of mass unemployment tha it lost for a short time after the Second World War.
There are two things that society cannot tolerate for long without them becoming a serious threat to its social fabric. Those two things are mass unemployment, and an awareness amongst many of the unemployed that the wealthy are becoming wealthier and are being protected.
Together, those two things are potentially explosive and will damage the social fabric of a community. It is to the Government's shame that they have not only perpetuated a problem but made it worse. As the Financial Times said, they have begun to turn the clock backwards. The Government have a lot to answer for. Unfortunately, we might not have seen the full consequences of their actions yet.

Mr. Stuart Holland: My hon. Friends have already stressed the importance and significance of wealth and the wealth-creating principle in Conservative economic philosophy and the emphasis given to that before the 1979 election. It is important to draw attention to what Conservative Members said before the election in relation to this crucial plank of their economic policy. They allege that wealth and wealth creation—through mechanisms such as the easing or abolishing of capital transfer tax—would not only alleviate the position of the over-privileged in society but would be the main vehicle and motor for the accumulation of capital and, with it investment, job creation and regeneration of the economy.
That is clearly shown in the 1977 statement "Outline of an Economic Strategy for the Next Conservative Government", which was made by four Conservative spokesmen, namely, the future Chancellor of the Exchequer, the future Secretary of State for Industry, the future Secretary of State for Employment and the future Secretary of State for Energy. As they spelt it out, the main features of their approach to the economy were:

"(i) Provision of a more stable economic climate … 
(ii) Strict control by the Government of the rate of growth of the money supply.
(iii) Firm management of government expenditure.
(iv) Lower taxation on earnings, capital and savings, to increase the rewards of skill and enterprise—paving the way"—

I emphasise that—
to more secure jobs, particularly for the young.
In other words, according to those not irrelevant members of the Government, the relaxation of wealth taxation and increased inequality in this society was not only to reward enterprise but to pave the way for more employment and for more youth employment.
The statement added that its purpose was

not to destroy jobs but to lift the crippling burden on the private sector and to create the conditions needed for new and more secure job-creating wealth".
Its authors had the grace to make the admission:
Of course this is much easier said than done.
They might well stand by that qualification of their claims. They appear to be against not only State spending—which will be important in relation to later clauses—but credit. That is surprising. That major policy statement by Conservatives who are now Ministers claims that it is not only pressures for monetary expansion from excessive public spending that have caused problems for the economy, but
private demand for credit as well".
That is an economic philosophy. In effect, the authors are saying that wealth and wealth creation are superior to credit and bank borrowing or to the generation of direct resources from public expenditure.
My hon. Friend the Member for Hammersmith, North (Mr. Soley) implied that Ministers are concerned to aid small and medium-sized enterprises. It would be surprising if enterprises could be aided by wealth transfer alone. The financing of investment needs by enterprises in the economy is largely through self-financing—retained earnings—and through bank borrowing, or credit. It has hardly been done via the redistribution of wealth or through the stock market. Many members of the public may be puzzled and perplexed when they listen to a brief summary of the stock market share price index after the news or after the "World at One". They have to listen to it as if it bore some direct relation to investment and job creation in the economy.
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The relationship is tenuous if not non-existent. Less than 5 per cent. of the investment needs of British industry over the past 50 years have been met by stock market finance. It is in the stock market and the playing of the stock market that wealth is so notably concentrated. Already fewer than 2 per cent. of the holders of personal shares command and account for about 80 per cent. of those shares. We are talking not about the rich but about a minority class or clique of super rich within the system, who do not translate those savings into industrial investment. There are good reasons for them not to do so under present conditions.
A widely neglected fact in relation to wealth creation, savings and investment, is that about 85 per cent. of finance raised on the British stock market goes into investment outside this country. The main mechanism by which it does so is either through portfolio investments abroad or direct investment through the mechanism of British companies operating in different countries. Yet that process—which in essence competes with the savings available for investment in this country—has been facilitated by the Government through the abolition of exchange controls, which should be seen as an integral part of their economic strategy jointly with their alleged promotion of enterprise and investment, jobs and youth employment, through the current provision for capital transfer tax.
We cannot say that we were not warned. That combination of the four Ministers warned us that the tax strategy of a future Conservative Government not only would promote personal savings in capital building—note the use of the word "building" which by implication is positive and constructive and implies people using their


hands to put together bricks, mortar, concrete, steel and even machine tools. The Ministers told us that they would ensure
Stronger encouragement to personal savings and capital building on the widest possible scale.
The personal incentive argument carried much force with a section of the electorate during the last general election. It should be admitted by the Opposition, too, that it carried force because of promises of cuts in personal taxation. My hon. Friend the Member for Edinburgh Central (Mr. Cook) is correct to say that the easing of taxation provisions on wealth over £150,000 was of marginal interest or relevance to most of those who voted for the Conservative Party.
It may be of interest to some of those observing the debate that while the Government have not yet managed to fulfil their undertaking on personal taxation cuts in real terms to the electorate as a whole, they are prepared to go ahead with the provision to ease taxation and further increase the wealth of a minority of the population—probably less than 1 per cent. of those concerned.
While the Government may not be deterred from that because of their passionate, indeed, metaphysical, belief in the virtues of promoting investment in jobs by increasing disparities in wealth, they might look at the track record of a further major concession on taxation directly relevant to investment and wealth creation in the wider public sense. That is, what happened to tax relief on corporate profits over the past decade or more? If the argument is that the reduction of tax thereby increases incentives to invest—in the case of wealth it makes available more savings for investment—let us consider the transmission mechanism through the corporate sector. Nominally, corporation tax runs at 52 per cent. of a firm's total tax. By 1974, that had been reduced effectively to 26 per cent. of pre-tax profits in the corporate sector. Through further measures introduced in the 1970s through tax relief on stock appreciation—I was a critic of that at the time, and I still remain highly critical—the effective taxation on corporate profits was reduced further from about 26 per cent. to less than 6 per cent. of total profits.
For the bigger businesses within the system, the effects of the combination of investment grants, depreciation allowances, tax relief and stock appreciation, research and development assistance—a range of incentives—virtually abolished taxation.
In the late 1970s, the top 25 profit-earners in the economy were collectively earning pre-tax profits of £4½ billion on which they paid corporation tax of less than £150 million.
Maybe the Almighty knows, but I do not know the wondrous workings of the invisible hand as interpreted by the Government and how they expect that reducing taxation and making further resources available, will, of itself, transfer savings through to investment. We were told forcefully by the Chancellor of the Exchequer in June 1978:
Tax cuts have a real creative importance. For they can allow the rapid accumulation of post-tax wealth by that comparatively small (and necessarily unidentifiable)"—
the logic of "unidentifiable" escapes me; I do not understand why they should not be identified other than a disposition by the Conservative Party to protect its friends—

necessarily unidentifiable band of people who have the capacity to identify and exploit new commercial opportunities (in services as well as manufacturing industry).
Metaphysics are the brunt of the argument. The right hon. and learned Member was aware that a Conservative Government were likely to increase disparities in income and wealth, but welcomed it. As he said
That is why we must restore the legitimacy of becoming rich by taking risks.
It is "legit" to be rich. We should not feel any moral anguish about it. [Interruption.] It is clear sometimes when I try to move my car around the front or rear ends of the Rolls-Royces parked—not by Opposition Members—downstairs in the car park that there are certain right hon. and hon. Members who certainly have few scruples about the wealth that they enjoy. The crucial argument in relation to wealth is not, as Veblen said, "conspicuous consumption," which should be an embarrassment to those who psychologically feel the need to demonstrate it. The fact is that disparities in wealth do not promote investment in the system.

Mr. Soley: I do not wish to lead my hon. Friend astray, but will he consider my experience as a probation officer? Many of the people I knew got rich by taking risks, but they nearly all went to prison.

Mr. Holland: That is a point well put by my hon. Friend. I shows the different kinds of wealth; indeed, the two nations into which we are being divided—those who stand to benefit from this provision and the 98 or 99 per cent. of the population who do not.
The crucial feature of wealth and capital transfer provisions which are essential to what the Government are doing, is that they fly in the face of the failure of tax reductions as an incentive to investment not only in this economy but in economies abroad.
We know why it is being done. The Conservative leadership has not only abandoned and denounced State intervention in the economy; it has abandoned and denounced Keynesian economics. It has returned to the principles that pre-date John Stuart Mill, who, as a Liberal economist, strongly argued for progressive taxation within the system as the basis for making available sufficient funds for public contribution to the accumulation of wealth.
In social policy the Government are seeking to roll back the frontier of the State and with it the main gains made in housing, health and education by post-war Labour and Conservative Governments. Defending inequality in the name of liberty they have aimed to unleash initiative, investment and jobs by increasing incentives and rewards to the already well-rewarded, thereby increasing class disparities and coincidentally narrowing their own class base.
We see no evidence that greater wealth concentrated in the hands of a few creates more investment. It is important to remember that the wealth creation also bears only a tenuous relationship to another key plank in the Government's philosophy—monetarism and the role of the money supply. There is no logical connection between a macroeconomic policy, which lays so much emphasis on the role of the money supply in the economy, and the mechanism of wealth as an assumed prime condition for the translation of savings to investment.
It is clear from statements by Ministers in the debate on the Budget and in consequent debates, and by the Prime


Minister to her own party last year, that many Conservative Members, in this respect at least—if in so little else—in making capital transfer and the transfer of wealth easier see themselves as still on course. It must be consoling to some Ministers, and almost certainly to some Conservative Back Benchers, to consider that in this respect the Government are still on course and that this is a pledge that they are able to deliver to the electorate and to their own supporters by reducing the effective taxation of wealth.
It might be rewarding, because we have been told "You turn if you want to. The Lady's not for turning." In this respect the Lady has not turned.
However, we can be sure that this will have no measurable effect on the promotion of investment or the creation of jobs, and certainly not on the creation of jobs for young people in the manner claimed by key Conservative Ministers in their crucial economic policy statement in 1977.
Since the general election the Prime Minister has claimed that Conservatives made plain what they would do. One might say that, although more stress was laid on cutting waste from the public sector than on laying waste to the public sector as they have done.
The Conservative themes of an open society—again metaphysics, of Von Hayek, with minor trimmings from Milton Friedman—were not especially threatening to an electorate which had by 1979 forgotten the poor law, the inquisition of the means test for social security benefit, rack rents and slum landlords, the lack of higher education for children from under-privileged groups and the high unemployment of the 1930s. In reality the negative economic measures taken by the Government in the Budget, returning us to the 1930s, will not be offset in the manner that they espouse and anticipate by capital transfers and the creation of private wealth.
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That is particularly important in relation to the role of small and big business in the economy. Less than 5 per cent. of the investment needs of British industry comes from the stock market. In addition, the main problem for small enterprise within the system often is not the mechanism of wealth transmission and problems posed by capital transfer tax but the lack of finding an heir. It is an irony central to contradictions in Conservative Party policy. In small firms the hereditary principle, lauded by this provision and in Conservative philosophy, is one of the greatest problems for small enterprise.
It is a classic of elementary analysis of the economics of a firm or enterprise—an analysis which is so elementary that Government Members are not familiar with it—that the problems for small firms come not so much with the original entrepreneur but in that phase of transition to establishment to a medium-sized enterprise. The transition from small to medium or large enterprise is difficult.
Where that transition has succeeded, for example, is West Germany. Hon. Members have often referred to Mittelstandspolitik—the small and medium firms policy operated by the German Government. Government members seem to have read the top line of such policy provisions but have failed to read the bottom line. They fail to appreciate that small and medium enterprises in the West German economy thrive because of the intervention

of the banking system and that it is through the supervisory board mechanism of the banks, aided by mechanisms such as the Reconstruction Loans Corporation and its successor agencies, by the State banks of the Lander, by intervention rather than the working of the market. That small and medium enterprises are given the finance to ride over not only difficult periods of innovation and entrepreneurship but also take-over or elimination tactics from other enterprises.
The West German policy also contains a strong cartel law, following the devastating experience of the concentration of capital in Germany in the 1930s, which effectively gave Hitler a self-made armaments industry for the Third Reich.
After that experience the Germans have been tougher in their cartel and competition policy than the United Kingdom. I speak with feeling in the matter, since I was a member of the Committee on the Competition Bill. The German Government have been tougher than the British Government are even prepared to consider being in assisting small and medium-sized enterprises.
In other economies which have succeeded in maintaining a fabric of small and medium enterprises, such as France, a range of mechanisms of State intervention not only assists small and medium firms to tackle unequal competition but ensures that a certain proportion of public spending, whether national, regional or local, goes to them. In France the role of the prefect—

The Deputy Chairman (Mr. Victor Goodhew): Order. The hon. Gentleman is going a little wide of the clause that deals with the rates of capital transfer tax. I hope that the hon. Gentleman will address his remarks to the clause.

Mr. Holland: With respect, my remarks are central to the Government's justification for reducing the taxation on capital transfers. The effect should be that which Ministers and Opposition spokesmen have claimed it to be. They are totally misguided in their reasoning, and the measure will not have the economic effect anticipated. It is socially divisive and will further increase disparities of wealth within the economy while not compensated by the justification of economic success. That point is sufficiently well understood for us to register our protest at the metaphysics of the Government's economic policy and its false assumption that increasing disparities of wealth will result in the transmission of savings into investment.
I regard this as a divisive clause not only on moral grounds or on grounds of social justice, but for the extent to which it will contribute nothing to the promotion of investment.
I began by talking about the claims made by Conservative Members that the clause would create not only jobs but youth employment. The provision will do nothing to create youth employment and I expect it to do next to nothing to create jobs, for example, in the inner London area of Lambeth, Vauxhall that I represent. It is only by intervening in the economy with Government policies that are not necessarily left of Centre, and making at least an L-turn—if not a U-turn—in economic policy that the Government can avoid increasing the disparities in wealth as a result of this measure, and also contributing to a further increase in unemployment.

Mr. K. J. Woolmer: Our debate today centres around a series of tax changes that give substantial benefit to those who have the greatest wealth in our society. Whether we agree or disagree about the merits of the proposal, that is what the clause does. We must remember what the Government have proposed in successive measures over the past two years to understand the balance of judgment about whether the clause is a useful or proper way to use such benefits as the Government can give at this time. I shall not dwell on the matter at length.
During the past two years, the Government have reduced unemployment benefits as a deliberate act of policy for the first time since the 1930s. They have failed to maintain the real value of personal tax allowances, thus bringing hundreds of thousands of low-paid people into the tax net for the first time, including many widows and women on their own in the 60 to 64 age group. They have abolished the 25p rate band, thus ensuring that people on low incomes of £50 a week pay a marginal rate of taxation of 38 per cent, including national insurance contributions. In the middle of the present depression, successive Conservative Budgets have talked about the need for even more austerity. It is in that context that we are asked to consider whether we should give large tax concessions to the richest people in our society. I shall dwell on that matter for a while, because it is the burden of the Government's proposals.
The Government say that we all have to suffer if there is to be an improvement. But it turns out that not all of us have to suffer; only those who do not have personal fortunes of hundreds of thousands, or millions of pounds. Why do we all have to suffer, except those who have personal fortunes of several hundred thousand pounds? They do not even have to suffer along with us; they have to be given largesse. I shall be interested to hear how the Minister can justify that.
People who have had incomes over the past couple of years of about £600 a week will have benefited in real terms by an improvement of about £40 a week as a result of Government policies. That improvement is almost as great as the amount that many families have to live on for a whole week—to pay for their food, heating, lighting or pay for any small entertainments, including drinking and smoking,. The amount of improvement for the richest in our society has been at least equal to the amount that some people have to live on for a week.
The clause introduces reduced rates and changes the personal fortune levels at which different rates of taxation apply to transfers of wealth and capital. We could be arguing about whether it is justified to have a wealth tax, or what we should do about the inequalities of wealth. However, that is not the issue before the Committee, and I shall try to explain why. As a result of the clause for most rich people the capital transfer tax will now be virtually a voluntary tax, or at least—as it is put so often in financial journals—a tax on the badly advised.
People who are on social security come to me and say they are being hounded by investigators, or they are elderly widows who cannot understand why they are taxed at 50p or 60p in the pound on a small private pension for which their husband paid while he was at work. Those are the kind of people who come to me. Yet the clause is a blatant proposal whereby people who are much better off will be able to escape taxation, even on their substantial wealth.
Whom do the changes effect? Is it the ordinary man or woman in the street? Or is it even the hard-working and highly paid manager or business man? I said on a previous occasion that I was—not astounded, because one should never be astounded—struck by a radio programme last week that made it clear that when financial people talk about the small saver they are talking about people with savings of £70,000. I said then that if those are small savings, I do not know anyone who has what would be regarded as a large amount of savings. But this clause does not even affect people whom the BBC described as small savers. It does not involve such small fry as people who have a mere £70,000. It affects people who have hundreds of thousands, or even millions of pounds.
My experience, and I are sure that it is shared by other hon. Members, is that people who are modestly paid do not resent other people being highly paid if it is a reward for hard work, the creation of jobs, and so on. Those are not the sort of people I am talking about. I am not talking about the small business man or the factory manager who has worked hard and who has the house on Nobs Hill where everyone would like to live but cannot afford to do so.
We are talking not about those who work hard and build up a decent, modest amount of wealth, but about something quite different—namely, the transfer of wealth from people with £100,000, £200,000 or £300,000 of wealth and capital. The subsections will enable that wealth to be transferred without taxation.
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Who will work harder as a result of the large tax handouts to the rich? It will not affect many people. I am at a loss to understand how someone with £500,000 will work harder because he pays less transfer tax. I presume that the recipient will not work harder, either. All logic says that if someone receives a large amount of wealth for nothing he will work less hard.
Treasury Ministers have said that a person earning £40 to £50 a week will not bother to work because he can obtain a little more from social security. That has been the basis for taxing supplementary benefits and for hitting the 2½ million unemployed. We have not heard a whimper of a suggestion that giving hundreds of thousands of pounds—or even modest tens of thousands of pounds—to people will result in their working less hard.
Why are the large tax handouts going to the rich at this time? It is difficult to obtain figures for how many will be affected and how much it will cost. The Committee is owed an estimate from the Minister. At the very most, and I am being generous, the clause will benefit 20,000 of the 18 million or 19 million households in Britain, of which more than 2½ million are affected by the plague and curse of unemployment. Those 20,000 households have an average wealth of £500,000. I have produced my own estimates of who will benefit. Most people cannot conceive of that sort of wealth. Ordinary men and women, even well up the income scale, think of their wealth as their house—if they own it—bank, building society and post office accounts and life insurance. When talking about taxation of wealth before elections the Conservative Party says to the ordinary man and woman "Beware of the Labour Party which is after your wealth, to tax it." We are talking not about that sort of wealth but about the wealth


that means land and company shares. We are talking not about the home and a modest building society account but about large amounts of money.
I do not question whether there is an argument for taxing wealth. I believe that there is. But at this time and with the country's economic problems I question whether such people should be given an additional benefit. I hope that the Minister will not respond to the argument whether there should be a wealth tax, but say why people with average holdings of wealth of £500,000 should be given, this year of all years, an additional tax handout.
Will the tax change result in a greater sense of fairness? I do not believe that anyone thinks that it is fair. Will it share out the misery of high unemployment and falling living standards? The clear answer is that it will not. How much will it cost? My hon. Friend the Member for Edinburgh, Central (Mr. Cook) tried valiantly to get the Minister to answer that question. I suspect that the Government are too ashamed to say how much it will cost. Are the Government giving as much to the wealthy as they are taking from the unemployed by cutting the real level of unemployment benefit? If, as I suspect, it is at least as much as that, what is the justification for cutting benefits and transferring that money to people whose fortunes are at least £500,000?
The Financial Times said on 14 March:
By this change in the capital transfer tax Sir Geoffrey Howe has advanced boldly towards inequality.
Why has the right hon. and learned Gentleman done that? What benefits will it bring to the economy? Will it result in more jobs for the unemployed? This legislation is typical of the hard-faced, socially-divisive policies of the Prime Minister and her Cabinet—policies that have resulted in deflation as well as 2½ million unemployed. At a time of the greatest misery and problems that we have seen in 50 years the Government are seeking to help their richest friends—those who need help least—when the real need is to create jobs for the mass of our people.

Mr. Austin Mitchell: The clause touches on the nub of the political differences between the two major parties in the House. There is a major difference of attitude towards that gulf of wealth that scars British society. The Opposition believe that Britain is still overwhelmingly not only a class-divided society but one with sharp and deep divisions of wealth. They are as sharp and as deep as they are in the United States and, in some respects, in the South American banana republics.
A change in the major share of wealth held by the top 1 per cent. or 5 per cent. has been painfully slow during this century. Fortunes have been left largely undisturbed, despite all the propaganda, the complaints and the constant chorus of moans from the wealthy. It could be argued that one of the major industrial and commercial problems in Britain is the dominance of large fortunes, which has helped to encourage the "idiot-son" syndrome, inertia and the lack of initiative, stimulus and enterprise that comes from the inheritance of wealth.
Differences in wealth is a recurrent and dominant theme of twentieth century politics, as it was in the nineteenth century, when extension of the franchise was resisted on the grounds that it would open the way to greater equality and that the working classes would use their power to attack the distribution of wealth. It has become an even

more important theme in the twentieth century. Those of us who have taken twentieth century history still have the image of Winston Churchill leading the crowds in singing:
The land, the land, t'was God who gave the land, The land, the land, the ground on which we stand. Why should we be beggars with the ballot in our hand? God gave the land to the people.
That was at the time of the people's Budget as opposed to the present top people's Budget.
These differences and distortions in wealth have been a recurring theme and represent a recurring failure for the parties of social change and progress. That is partly because the chief skill of the Conservative is to enlist the widows and orphans in the front line of the defence of wealth and privilege. Indeed, whenever there is an attack on wealth and privilege the Conservative Party attempts to interpose widows and orphans to protect the great fortunes that are its real interest and preoccupation.
There has been a recurring failure also because of the inadequacy of the means chosen to redistribute wealth. In the end death duty became virtually a voluntary tax. Capital transfer tax is better, but its effect is being whittled away at such a rapid rate that its effectiveness as a means of redistribution and making wealth pay its share of the burdens of the nation has been totally undermined.
It is fair to warn the Conservative Party that it is paving the way for an almost certain backlash against wealth. The Labour Party will deal with wealth. It will make wealth pay its share of the burdens of the nation. We shall attack wealth as the main source of inequality and social divisions. Measures such as this clause strengthen our determination in that respect.
Our specific objections are obvious and clear. This concession to wealth is being made at a time when the Government are reaching down to the pockets of the poor, the unemployed and the social security beneficiaries to help pay for the failure of their economic policies. This is not the time to introduce such concessions to wealth. Our second objection is the surreptitious way in which it is being done.
In his Budget Statement the Chancellor told us that in a year in which he could give no income tax relief he could not make major changes in capital taxation. However, that is exactly what the right hon. and learned Gentleman is doing by clause 88 and 89. He is making a major concession to the wealthy. The result of the clauses is that the wealthy man who is passing on an estate of £1 million or £2 million in the case of a business or farm, which is half rated will have his total, tax bill cut. If he passes it on in instalments over 20 years, the effect of the two concessions will be that the owner of that fortune of £1 million will have his tax bill reduced from £452,000 to £299,000.
In other words, at a time when the Government are taking money from social security beneficiaries, the unemployed and the poor, and when they have failed to increase the allowances, the wealthy man will have his tax bill reduced by one-third. That is a reduction in the contribution that wealth should make and which everyone in the House of Commons accepts is its social responsibility. The tax loss effect will be far more dramatic than the minuscule losses to the Exchequer that have been described by the Government.
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The concessions are socially unjust. The Government are acting surreptitiously. It is interesting that the Minister of State, that defender of wealth and privilege, is to reply. At a time when expenditure is being cut and when taxation of real incomes is being increased, an unusually powerful supporting case is required. Instead, we have been given a defender who is likely to advance the most trivial defence, and one that is based on self-interest. The hon. and learned. Gentleman devoted his previous incarnation to defending those interests.
There is no economic case for such large capital tax reductions going to a handful of the wealthiest. It is true that in the Economic Progress Report the Government have placed these concessions under the heading of "developing the small business sector". However, these concessions go well beyond that. Those who will benefit from them primarily are those who have the most. A business with a valuation of £4 million, for example, is pretty well big enough to be quoted on the Stock Exchange, but the concessions will mean that such a business will make a substantially reduced contribution.
I shall concentrate on the effect that the concessions will have on farming. The effect of our economic development over the past few years has been to increase the value of agricultural land. There has been a skyrocketing increase in its value. That has happened partly because it has been a good investment and partly because it has become a tax fiddle. The prime cause has been Britain's entry to the European Economic Community. That organisation has provided a politically secure, unchangeable and largely politically unchallengeable way of devoting massive revenues and massive help to farming. It has made farming almost sacrosanct. The result has been a predictably rapid increase in the value of agricultural land and in the wealth of the farming community.
The common agricultural policy underpins a structure of high and rising agricultural prices, which are themselves the guarantee of high and rising agricultural land prices. The concessions contained in the clause will now help to encourage that process. It is a process that makes no economic sense when we bear in mind the amount of capital that has to be tied up in the land rather than in actual production.
The Government say that their aim is to help defend and preserve the private landlord. However, there is no economic case for treating agricultural landlords differently from other rentiers. Undoubtedly, too, we shall be told that the Government's purpose is to encourage new tenancies. Both these arguments are fallacious. An argument that might apply to the small business sector cannot be applied to agriculture because the supply of land and, therefore, of new businesses, is finite and diminishing. There will not be an increase in employment in agriculture. Indeed, there has been a long-term tendency to reduce the numbers employed in agriculture. The concessions will not lead to an increase in the number of new tenancies or to agricultural efficiency.
I see no necessity to protect and preserve the private landlord. That will not encourage new tenancies. If a private landlord sells his land, farming will still be continued by the tenant who is in possession and by his successors. If a private landlord is replaced by an institutional landlord, the tenants of an institution will be no less efficient than the tenants of a private landlord.
This measure really encourages and defends the private landlord and the private sector of agriculture. As tenancies become vacant, and as the land becomes freed from tenancies because tenancies decrease the value of the land, we shall be encouraging not the splitting-up o f old tenancies and the establishment of new tenancies but taking the land under the landlord's control and running that land under managers. That will lead to an appreciation in capital value and give landlords the direct benefit from agricultural production.
Who will benefit among the farmers? Because the benefits go mainly to the well-off, the indications are that they will go to the better-off farmers.
There are about 121,000 full-time farms in Britain, the average size of which is about 286 acres. The average value of that, including land and buildings, is just under £500,000. As a result of this measure, those average-sized farms will now effectively pay zero capital transfer tax. In other words, they will be taken out of capital transfer taxation.
It is misleading of the Economic Progress Report to talk about a reduction in the maximum rate of CTT from. 75 per cent. to 50 per cent. because the 50 per cent. rate is payable only on that part of the valuation over £2 million. The average effective maximum rate is 40 per cent., and that takes no account of the doubling in assets of farms and small businesses.
Therefore, the main beneficiaries will be the larger farmers, and it is worth emphasising that those larger farmers are not the most efficient. Indeed, economies of scale and efficiency can now be achieved by farms no bigger than the average size to which I have just referred: There is no argument on the ground of efficiency, economy or agricultural development, for encouraging the survival or concentration of large farms, yet that is precisely what this measure will do. It must do, because it concentrates relief on the better off sections of society.
The arguments for encouraging and retaining the private landlord are fallacious as is the argument for encouraging the larger farms—

Mr. Anthony Fell: Will the hon. Gentleman give way?

Mr. Mitchell: I would rather not. The hon. Gentleman will be pleased to know that I am bringing my remarks to a conclusion.
The clause does not encourage efficient agriculture. It does not benefit the section of that industry to which I have referred. At the same time, it makes a massive concession to the well-off at a time when the Government are digging deep into the pockets of the poor. As such, it reveals the Government's social priorities in a manifest and crude form.

Mr. Peter Rees: The hon. Member for Edinburgh, Central (Mr. Cooke), for whose intellect and eloquence I have a great regard, initiated this debate in a somewhat demagogic way, which set the tone for the speeches that followed. As a result, we have not had a profound or penetrating analysis of what is a complicated and unattractive tax.
The hon. Gentleman's speech to an extent detached itself from the clause and, indeed, from the facts of the case that he was allegedly arguing. It would probably have sounded better in the Grassmarket than it did in the Chamber.
I was sorry that the hon. Gentleman singled out one noble duke as an abstraction of all the forces of wealth and privilege that he wants to attack. It is always a little unfair to assail someone in the privileged environment of this Chamber, when he is not able to answer back directly. I know that the hon. Gentleman is quite capable of embarking on verbal fisticuffs with any opponent worthy of his steel. He should, therefore, do so with other hon. Members who can answer back, and we can then have a fair fight and distil the real arguments.
The main burden of the hon. Gentleman's speech and the interventions of his hon. Friends was that the Government were taking from the poor to give to the rich. Presumably because my thrust had gone home, the hon. Gentleman recalled my swift addition of the tax reliefs which the major Opposition amendments that we have already debated would cost. The figure was about £4½ billion. It was perfectly legitimate for me to press the Opposition on how they would have raised that money and supplemented the taxes that they were prepared to cut.
Let me reassure Labour Members. If we deleted clause 88, it would go very little distance towards supplementing the inevitable funds on which the Chancellor must lay his hands. The clause adjusts the rate of capital transfer tax on lifetime gifts. If hon. Members refer to the Red Book published at the time of the Budget, they will see that the cost for 1981–82 is £2 million and £4 million for subsequent years. That perhaps puts the debate in its true perspective—[Interruption.] If the hon. Member for Workington (Mr. Campbell-Savours) wishes to intervene, I shall willingly give way.

Mr. Campbell-Savours: Perhaps the hon. and learned Gentleman will tell us who directly benefits from these small amounts of money. Are they our constituents?

Mr. Rees: It is not for me to speculate on those who are fortunate enough to be represented in our debates by the hon. Gentleman. I do not know their individual circumstances, and it would be impertinent of me to try to find out. The hon. Gentleman must speak for them in whatever voice he can. I listened to him during our Committee proceedings last year. I do not know whether I shall have the pleasure again this year. If so, perhaps we can explore their circumstances and the adequacy of their representation in greater depth. For the moment, I should like to refer to the more general theme which goes back to the point made so forcefully by the hon. Member for Edinburgh, Central and perhaps somewhat less forcefully by other Labour Members.
I know that it is difficult for the hon. Member for Grimsby (Mr. Mitchell) to get enough support in our debates on these occasions. My heart has bled as time and again the hon. Gentleman has given us the benefit of his undoubtedly eloquent tongue, if slightly unoriginal views. Perhaps it was on that account that, before I had even uttered a word about the clause, the hon. Gentleman described my intervention as likely to be trivial and interesting. I must bear those criticisms with as much fortitude as I can muster. At any rate, the triviality and interest of the hon. Gentleman's intervention will best be judged by those who study our debates when they read the passages from Hansard.
I pay the hon. Member for Edinburgh, Central the courtesy of trying to treat seriously the case that he made,

which was that this Budget deprived the poor and gave handouts to the rich. Perhaps we can establish a common basis for the concepts that we deploy. I should tell the hon. Member for Batley and Morley (Mr. Woolmer) that there have been no handouts to the rich. There has been some shading of the burdens imposed on them—[HON. MEMBERS: "Oh."] I am glad that I stir Labour Members to some merriment. So far, their interventions have been of a peculiarly lugubrious if irrelevant kind. I am always flattered to cause some merriment when I intervene. Perhaps that is why the hon. Member for Grimsby described my interventions as trivial and interesting.
As I was saying, the cost of the Opposition's amendments so far is well in excess of £4 billion. The cost of the clause would be £2 million in the current year and £4 million in subsequent years. That, I believe, is not a very large sum to pay to introduce a small measure of balance into this tax. I will come to the general philosophical concepts, because one point that I would make to the hon. Member for Edinburgh, Central—he cannot have missed it by inadvertence because he is usually so assiduous and penetrating in his comments—is that there has been precious little revalorisation of the rate bands since capital transfer tax was introduced by his right hon. Friend the Member for Leeds, East (Mr. Healey) in 1975.
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Let me remind the House. I will take it from the top end of the scale—because it would be tedious to go through all the bands—and indicate what their true figures would be if they had been revalorised to take account of inflation since March 1975. The top rate of 75 per cent. was brought in in March 1975 at £2 million. If that had been revalorised it would have been £4,569,600, and so on, all down the scale. I can say to the Committee, blushing perhaps as I do it, that in fact the relief that we are offering in the clause for the Committee to consider is probably less—in fact, far less—than is required to bring the burdens of capital transfer tax down to what they were on lifetime transfers in March 1975. That gives perhaps a slightly different perspective to our debate on this point.
The debate was broadened out a little, on to the questions of concentrations of wealth, and inequality. We had a highly academic disquisition on the effectiveness of the range of tax measures that have been introduced in this and previous Budgets by the hon. Member for Vauxhall (Mr. Holland).

Dr. Jeremy Bray: Will the right hon. and learned Member give way?

Mr. Rees: Of course.

Dr. Bray: On the interesting comparison of the indexing of the capital transfer tax bands with those that are provided for here, would the right hon. and learned Gentleman not agree that when a new tax is introduced it is, on the whole, wise to introduce it at somewhat lower rate than is the intention to apply it eventually? Therefore we cannot compare the initial bands or rates with those that the introducers would have hoped we would have reached by this time?

Mr. Rees: That was a fascinating intervention. I do not know whether we are to understand from the hon. Member that the idea was to introduce the tax at a modest rate and then for his right hon. Friends to turn the screw ever more


assiduously year by year, that the country was forced to endure a Labour Administration. The cat is now really let out of the bag. This is evidently what we would have to expect if the country were ever ill-judged enough to return an Administration that took its colour from the hon. Gentleman. I have endeavoured to extract from the right hon. Member for Stepney and Poplar (Mr. Shore) whether a future Labour Administration would be prepared to introduce a wealth tax. He was obstinately silent, but obviously he would get a little encouragement and assistance from his hon. Friends, who clearly would encourage him to introduce a wealth tax. So now we know that the real burdens of all the taxes on capital would be increased by a subsequent Labour Administration.
Let us get the present tax into perspective. I have looked back with a certain amount of nostalgia to the debates in 1974–75. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) took part, as did the right hon. Members for Dudley, East (Dr. Gilbert) and Heywood and Royton (Mr. Barnett). I think it was the latter right hon. Gentleman in particular who commended this tax to us as being in the interests of fairness—to unite the country, to make the sacrifices that are going to be imposed on people by a Labour Administration. That is one way of looking at the tax. There are, however, certain side effects that were perhaps not adequately canvassed, at least from the Benches opposite, during the debate this afternoon.
In the course of our debates in 1974–75 a sort of dim comprehension was finally achieved by the then Government Benches of perhaps what they were embarked on, and rather hurriedly, in the month of February 1975, the right hon. Member for Ashton-under-Lyne suddenly introduced, more than half-way through the Committee stage, a measure designed to lower the rates on lifetime transfers. It was commended to the then Committee by the right hon. Member for Heywood and Royton specifically on the basis that it would help small businesses and small farms. Also, I think it was implicit that it would encourage the mobility of property between the generations.
It was realised that perhaps it was not in the long-term interests of agriculture or business and, therefore, of jobs that property should be held on to by one generation to the point of death; so a lower series of rates were introduced, but only up to a specific level.
As I said, we wanted to build on that principle. We feel, too, that small businesses and farms should be encouraged, that the mobility of property between generations should be encouraged. Taking account of the increase in the real burden of capital transfer tax over the intervening six years, I think that the new rates that are to be found in schedule 11 go a certain distance, but perhaps not quite far enough. Indeed, some of my hon. Friends will say that there is more to be done, and if they do I will readily concede, because the issue here was very clearly put to the electorate.
I know that Opposition Members attach a tremendous importance to manifesto commitments, and they would not want a Conservative Administration to go back on the manifesto commitments on which they were elected, just as I know that Labour Members would not want to go back on the manifesto commitments on which they were elected in 1974–75. Let me remind them, because they may not have quite the same recollection of the Conservative manifesto as I do. It states, on page 14:

We reject Labour's plan for a Wealth Tax. We shall deal with the most damaging features of the Capital Transfer and Capital Gains Taxes, and propose a simpler and less oppressive system of capital taxation in the longer term.
I say at once that after only two years we have not entirely achieved our objectives. We have a certain distance to go, and I know that I shall carry my right hon. and hon. Friends with me in this, but this is a very modest measure indeed. As I have said, the cost is clearly set out in the Red Book, but it was studiously ignored by practically every hon. Member who intervened in this debate from the Opposition Benches. Since they were disposed to argue the case in general terms, let me first deal with the hon. Member for Vauxhall. As I said he has a remarkable and characteristic academic disposition, and no doubt he sounded very well in the University of Sussex, in which I know he was a distinguished luminary at one time. He claims that the clause is divisive. That it may be in his own mind, but I do not believe that it is to the country as a whole.
The hon. Member encouraged us to demonstrate that there would be promotion of investments and the creation of jobs. He is putting it in positive terms. I should like to put it in negative terms. Does the Committee feel that if there is a steady leach of capital from small businesses and farms, generation by generation, it will create new industrial activity and new jobs? What is this steady drip, drip, drip of capital from the entrepreneurial sector to the State going to do for jobs? What is it going to do for the health of British industry, or British agriculture?

Mr. Stuart Holland: Since the Minister posed the question, would he, in return, like to tell the House that an issue such as tax relief on stock appreciation, where the relief in the corporate sector as a whole has actually been as high as total net manufacturing investment in this country, is a purely academic matter? Is that his definition of "academic"? Secondly, in relation to the further part of his question, is he claiming inversely that an impact on wealth and wealth creation for those whose investment constitutes one-twentieth of the industrial investment in this country is itself significant? He is in danger, from his arguments, of excusing the illegitimacy of his reasoning on the basis that it is very small.

Mr. Rees: I suspected that it was a mistake to give way to the hon. Gentleman, because he obviously does not live in the real world where investment and entrepreneurial decisions have to be taken. If he is a little concerned about the consequences of stock relief—though I suspect, Mr. Speaker, that you will rule me out of order if I go too far down that path—I must remind him that it was the devastating results of the new system of corporation tax, the advance corporation tax and the advance corporation tax surcharge introduced by his right hon. Friend the Member for Leeds, East, that devasted British industry. As a small measure of relief to revive it the right hon. Gentleman compelled to introduce the first measure of stock relief, which we are now refining and improving in the Bill.
I am straying a little far from the general principles underlying the clause that I am commending to the Committee.
Capital transfer tax forces out into the open, in the sharpest possible form, the differences of policy and principle that divide the two main parties. For Opposition Members, the redistribution of wealth means a


redistribution from individuals to Government. It means a process of slow and steady confiscation. I remind the Committee that, with the doubtful exception of Denmark, Britain collects a higher proportion of its taxes from taxes on capital than does any other country of the European Community. These comparisons are always a little difficult to draw, but that is the conclusion to be reached.
For the Conservative Party, to which I am proud to belong, redistribution of wealth is a totally reverse process. It means giving the main mass of our fellow countrymen a chance to acquire a larger stake in the assets of this country. I instance particularly the sale of council houses, which has been fought so bitterly by the Opposition Benches. That is what we mean by the distribution of wealth—by contrast with the process of confiscation, rather thinly disguised, which has been introduced by every successive Labour Government.

Mr. Soley: Is the hon. and learned Gentleman really trying to fool the House into believing that the money that he has taken off the lower-income people by increasing taxes is not in some way in direct contradiction to the money that he is giving back to people who already have very large amounts of wealth? Would not that be redistribution, effectively, if we did it properly?

Mr. Rees: I endeavoured to demonstrate, at an earlier stage—clearly the hon. Gentleman has not taken the point—that there is absolutely no correlation between the reliefs that we are now debating and any other of the direct or indirect taxes which the hon. Gentleman asserts have the effect of imposing heavier burdens on the less well-off sections of our community. The hon. Gentleman who spent a great deal of time on this point, has failed to observe that the higher rate bands of income tax were not revalorised last year, nor have they been revalorised this year. I think that he had better have a closer look at the impact of the measures that were introduced by my right hon. and learned Friend the Chancellor in his Budget.
There are some fundamental principles that divide the two sides of the Committee. Our principles were clearly explained to the electorate in our manifesto and in our election campaign, and they were overwhelmingly endorsed in May 1979 by the electorate.
We believe that capital is usually—not always, but usually—more productive in private hands. We believe that private capital provides areas of independence of the State which deserve to be encouraged. We believe that a capitalist system—even a mixed economy such as this country enjoys at present—depends on continuing sources of private capital.
For those reasons I commend the clause to the Committee. I am sure that my hon. Friends will give it the massive support that it deserves.

Mr. Cook: The Minister taxed me at the outset with having singled out the Duke of Westminster. I say straight away that it was no part of my case to offer any personal offence to the Duke of Westminster. Indeed, as I recollect my speech, I did not offer any comment on the duke's character, opinions or personal behaviour. The only observation that I offered about the duke is that he is a very wealthy man. I do not think that the duke, even if he were in this Chamber and able to reply to the debate, would seek to deny that he is a very wealthy man.
I entirely concede to the Minister that one could have singled out any of the other 14 dukes. I think that the fact that we have 15 extremely wealthy dukes still living in the midst of our country puts perhaps a different dimension on the Minister's inveighing against confiscatory capital taxation.
I am well aware that in singling out the dukes I am following a long parliamentary tradition. I seem to remember that Lloyd George said something about dukes and fishermen. That was said at a time when he was obliged to go to the country in an election over death duties. I rather suspect that Lloyd George might have been taken aback, were he able to be with us today, to discover that some 70 years after the introduction of those death duties—which were denounced at the time as confiscatory, and were denounced in exactly the same terms, as shifting wealth from the private individual to the State—so little has changed that we can still single out any one of the 15 dukes as an example of outstanding concentration of wealth and as an example of the gross inequality of wealth in our society, examples which have survived those 70 years of that confiscatory taxation, which we are told today must be reduced.
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The Minister said that this was a complicated and unattractive tax. I can understand why those who come within its ambit find it unattractive. But the Committee must concern itself not with whether it is attractive or unattractive to those who are abliged to pay. Those who are obliged to pay any tax, by the nature of things, tend to find it unattractive. What we have to consider is whether it yields revenue without doing damage to the economy, and whether that revenue is achieved administratively simply. It is notorious that in many cases capital taxation achieves a significant yield of revenue proportionate to the effort that has to be put into it by the Treasury and the Inland Revenue to collect that tax. In that perspective, far from being unattractive and complicated, it is a simple and attractive tax—although I entirely concede that there are those who pay it, and there are those hired by those who pay it, who go out of their way to make the collection of it as complicated and as unattractive as possible.
The Minister was not so crude as to suggest that the purpose of this clause and the schedule attached to it is to cut the rates of tax. If I got his words rightly, he said that its purpose is to "adjust" the rates. There is a certain consistency about the adjustment that is imposed by the schedule. The adjustment in every case is in a downward direction. All those tax rates which are adjusted by the schedule are adjusted in order to make them less.
I therefore do not resile from the description that we have used in the course of the debate that this is not an adjustment but a cut. It is not, as the Minister suggested, a shading by relief of burdens imposed on them—the "them" in this case being the rich—or the introduction of "a small measure of balance". If I understood the drift of the Minister's speech aright, he was suggesting that the shading by relief and the small measure of balance were equivalent to revalorisation of this tax to bring it into line with the changes in inflation since 1975.
As my hon. Friend the Member for Motherwell and Wishaw (Dr. Bray) indicated when he intervened, in 1975 the rates which were set in 1975 represented for those with a capital of less than £300,000 a lower rate of taxation than the death duty which they replaced. One understands the


reason why that was the case, because it was accompanied by the abolition of the exemption period. Nevertheless, the fact remains that in 1975 the rates then introduced were lower than the rates which prevailed before 1975.
We are therefore back with the familiar question: what do we take as our base year? If we take our base year as 1975, the Minister has a point. The rates have not been amended for the higher rates since 1975. But they were adjusted in 1975. If we take another base year, we get a different picture. Let us leave that cavil to one side. Let us take 1975 as our base rate. Since 1975 there have been a number of changes in the rates. There were a number of changes in the rates for the lower bands even while the Labour Government were in office. But the most remarkable change to the lower band was the change that was introduced by the Minister himself in last year's Finance Bill, when he doubled the exemption figure to £50,000.
In 1975, anyone with a capital of £50,000 carrying out a capital transfer was liable to a capital taxation of 15 per cent. They are now liable to capital taxation of nil. Of course, that does not simply benefit those who have a capital of £50,000 which they are transferring. It benefits everybody who is transferring any sum greater than £50,000 who, to that extent, has the amount of the capital he is transferring exempt from taxation. In other words, even the Duke of Westminster benefits from this doubling of the exemption level, because he has that proportion of the capital that is transferred which is exempt from the charged tax.
There has been a significant change in the lower bands. Let us consider the higher bands. If I understood the Minister's plea to our understanding and sympathy for those caught in the higher bands of this tax, the case is that inflation has doubled since 1975 and it will therefore be unreasonable to leave them with the same tax imposition that was imposed in 1975. If I caught the Minister's drift aright, £1 million today is equivalent to £½ million in 1975. Let us examine that view.
Until this Bill, the rate that was imposed in 1975 until this date on a £1 million transfer was 70 per cent. Anybody carrying out a capital transfer of £1 million would pay taxation of 70 per cent. The Minister suggested that that sum was now equivalent to £ ½ million. I therefore presume it will be appropriate to adjust the rate of tax on £1 million to the level that prevailed on £ ½ million in 1975. That would be appropriate revalorisation. In 1975 the rate of tax that obtained for capital in excess of £ ½ million was 65 per cent. Therefore, following the Minister's logic, he would be perfectly entitled to argue for a shading by relief, or a small measure of balance, by reducing the rate of tax on capital of £1 million from 70 per cent. to 65 per cent. which was the rate imposed on capital of £ ½ million in 1975.
What has the Minister done? He has asked the Committee to cut the rate of tax from 70 per cent. to 45 per cent. a drop of 25 per cent. As I pointed out in my opening speech, for those in the highest rate band the rate is cut from 75 per cent. to 50 per cent. for those who transfer £2 million, that is equivalent to a saving of £445,000. That is not a shading by relief; that is not a small measure. of balance. It is a remarkably generous piece of largesse. Whether we describe it as handout or not, I shall not argue. I am quite happy to leave aside the term "handout". But £445,000 is not a shading by relief. If whoever inherited £445,000 were to live for 10 years at

£1,000 per week, he would not exhaust the sum when the 10 years were over, when he could, on a further tranche of £2 million, make further saving under this provision of £445,000.
If the Minister genuinely believes that the case for this small measure of balance is a readjustment of the table to revalorise the levels in the light of inflation, he should have adjusted the figures for the fortunes in the first and second columns of the table, not reducing the rates of taxation that obtained in the third column.
The Minister reminded us that there was a manifesto commitment by the Conservative Party to reduce the oppressive level of capital taxation. I say to the Minister—who I understand has ministerial responsibility for capital taxation—that he has been much more strikingly successful in carrying out that manifesto commitment than his colleagues have in carrying out the parallel manifesto commitment to reduce the burden of income tax. In his two years he has, on his own calculation, removed two-thirds of the individuals who were subject to capital taxation and in this measure he drastically reduces the amount of tax that would be required to be paid by the remaining one-third. Although we compliment him on his achievement in reducing the burden of capital taxation and the number of those eligible to pay it and removing from it the great majority of those who were liable before, it does not mean that we are out of order to draw the contrast between that achievement and the retreat of his colleagues over the issue of income taxation.
One of my hon. Friends attempted to intervene to make the link between the increase in income taxation which we witness in this Bill and the cut in taxation we witness in this clause. The Minister said that there was no relation between the two. With respect, there is a relation between the two. It is not sufficient simply to submit that the increase in income tax affects the low-paid and poor who will come in at the end whereas the cuts in capital taxation benefit the rich who were never particularly bothered about the tax threshold in the first place. There is a relationship, and an obvious contrast between the two.
I did not seek to suggest in my opening speech that if we threw out this clause we could afford to increase the tax threshold. Plainly, we would not release anything like the money required to increase the tax threshold. But the fact remains that we have been told that the Government cannot afford to raise the tax threshold by any amount, let alone fully revalorise, or to reintroduce the reduced rate band, or to forgo the manifesto commitment to tax the unemployed and the striker. Plainly, if we were to throw out this clause, it would not be possible to release the sum of money the Treasury needs to do any of these things, but against that background of refusal to assist the low-paid, of insisting on taxing the unemployed, to bring in a measure which provides additional relief, albeit a shading by relief, to the extremely wealthy and to all 15 dukes—not just the Duke of Westminster—is an insult to those who, it is said, cannot expect any relief in the tax system this year. I believe that the Committee should spare them that insult and should vote against clause 88.

Question put, That the clause stand part of the Bill:

The Committee divided: Ayes 189, Noes 134.

Division 178]
[4.27 pm


AYES


Alton, David
Miscampbell, Norman


Ancram, Michael
Morrison, Hon C. (Devizes)


Atkins, Robert(Preston N)
Myles, David


Baker, Nicholas (N Dorset)
Needham, Richard


Benyon, Thomas (A'don)
Owen, Rt Hon Dr David


Benyon, W. (Buckingham)
Parris, Matthew


Best, Keith
Patten, Christopher (Bath)


Blackburn, John
Prentice, Rt Hon Reg


Bottomley, Peter (W'wich W)
Price, Sir David (Eastleigh)


Bradley, Tom
Rathbone, Tim


Brocklebank-Fowler, C.
Roper, John


Colvin, Michael
St. John-Stevas, Rt Hon N.


Crouch, David
Sandelson, Neville


Dempsey, James
Shersby, Michael


Dorrell, Stephen
Smith, Cyril (Rochdale)


Ellis, Tom (Wrexham)
Squire, Robin


Fisher, Sir Nigel
Steel, Rt Hon David


Fletcher-Cooke, Sir Charles
Temple-Morris, Peter


Fox, Marcus
Thornton, Malcolm


Freud, Clement
Viggers, Peter


Grimond, Rt Hon J.
Wainwright, R.(Colne V)


Heddle, John
Waldegrave, Hon William


Howells, Geraint
Watson, John


Hunt, John (Ravensbourne)
Weetch, Ken


Johnston, Russell (Inverness)
Wigley, Dafydd


Kilfedder, James A.
Wilkinson, John


Kimball, Marcus
Wilson, Gordon (Dundee E)


Knox, David
Wolfson, Mark


Lennox-Boyd, Hon Mark



Lewis, Kenneth (Rutland)
Tellers for the Ayes:


Lyell, Nicholas
Mr. Tim Renton and Sir Brandon Rhys Williams.


Lyons, Edward (Bradfd W)



Maclennan, Robert





NOES


Alexander, Richard
Lloyd, Peter (Fareham)


Allaun, Frank
Lofthouse, Geoffrey


Arnold, Tom
McElhone, Frank


Ashton, Joe
McNair-Wilson, M. (N'bury)


Atkinson, N.(H'gey,)
McNair-Wilson, P. (New F'st)


Bagier, Gordon AT.
McQuarrie, Albert


Barnett, Rt Hon Joel (H'wd)
McWilliam, John


Bevan, David Gilroy
Marks, Kenneth


Biggs-Davison, John
Marland, Paul

 Braine, Sir Bernard
Marlow, Tony


Brotherton, Michael
Marshall, Dr Edmund (Goole)


Brown, Michael(Brigg &amp; Sc'n)
Marshall, Jim (Leicester S)
 
Budgen, Nick
Mawby, Ray


Callaghan, Jim (Midd't'n &amp; P)
Mawhinney, Dr Brian


Campbell-Savours, Dale
Maxton, John


Canavan, Dennis
Meacher, Michael


Carlisle, Kenneth (Lincoln)
Mikardo, Ian


Clark, Hon A. (Plym'th, S'n)
Millan, Rt Hon Bruce


Clark, Dr David (S Shields)
Mills, Iain (Meriden)


Clark, Sir W. (Croydon S)
Moate, Roger


Clegg, Sir Walter
Molyneaux, James


Cockeram, Eric
Morris, Rt Hon A. (W'shawe)


Cocks, Rt Hon M. (B'stol S)
Morton, George


Concannon, Rt Hon J. D.
Neale, Gerrard


Costain, Sir Albert
Nelson, Anthony


Cranborne, Viscount
Neubert, Michael


Cryer, Bob
O'Halloran, Michael


Cunliffe, Lawrence
O'Neill, Martin


Cunningham, Dr J. (W'h'n)
Page, Rt Hon Sir G. (Crosby)


Dalyell, Tam
Parry, Robert


Davis, T. (B'ham, Stechf'd)
Powell, Rt Hon J.E. (S Down)


Deakins, Eric
Radice, Giles


Dean, Joseph (Leeds West)
Richardson, Jo


Dewar, Donald
Roberts, Allan (Bootle)


Dixon, Donald
Roberts, Gwilym (Cannock)


Dobson, Frank
Robertson, George


Dormand, Jack
Robinson, G. (Coventry NW)


Dover, Denshore
Royle, Sir Anthony


Eastham, Ken
Sheldon, Rt Hon R.


Elliott, Sir William
Shepherd, Colin (Hereford)


Evans, John (Newton)
Skeet, T. H. H.


Fell, Anthony
Spearing, Nigel


Fletcher, Ted (Darlington)
Spriggs, Leslie


Fookes, Miss Janet
Stanbrook, Ivor


Foot, Rt Hon Michael
Stoddart, David


Freeson, Rt Hon Reginald
Stokes, John


Gardiner, George (Reigate)
Strang, Gavin


Garel-Jones, Tristan
Straw, Jack


Garrett, John (Norwich S)
Taylor, Teddy (S'end E)


Graham, Ted
Thomas, Rt Hon Peter


Grant, George (Morpeth)
Thorne, Stan (Preston South)


Grylls, Michael
Tilley, John


Hamilton, Hon A.
Tinn, James


Hamilton, James (Bothwell)
Wainwright, E.(Dearne V)


Hamilton, W. W. (C'tral Fife)
Walker, B. (Perth)


Harrison, Rt Hon Walter
Waller, Gary


Higgins, Rt Hon Terence L.
Wells, John (Maidstone)


Holland, Philip (Carlton)
White, Frank R.


Homewood, William
Whitehead, Phillip


Hooley, Frank
Wickenden, Keith


Huckfield, Les
Willey, Rt Hon Frederick


Hughes, Robert (Aberdeen N)
Williams, D.(Montgomery)


Hughes, Roy (Newport)
Winnick, David


Jay, Rt Hon Douglas
Winterton, Nicholas


John, Brynmor
Woodall, Alec


Kaufman, Rt Hon Gerald
Woolmer, Kenneth


Kinnock, Neil



Kitson, Sir Timothy
Tellers for the Noes:


Lamond, James
Mr. K. Harvey Proctor and Mr. Bob Dunn.


Leadbitter, Ted



Leighton, Ronald

Division No. 179]
[6.58 pm


AYES


Alexander, Richard
Ancram, Michael


Alison, Michael
Arnold, Tom






Aspinwall, Jack
Hunt, John (Ravensbourne)


Atkins, Robert(Presfon N)
Hurd, Hon Douglas


Baker, Nicholas (N Dorset)
Jenkin, Rt Hon Patrick


Banks, Robert
Johnson Smith, Geoffrey


Bell, Sir Ronald
Jopling, Rt Hon Michael


Bendall, Vivian
Kaberry, Sir Donald


Benyon, Thomas (A'don)
Kimball, Marcus


Berry, Hon Anthony
King, Rt Hon Tom


Best, Keith
Kitson, Sir Timothy


Bevan, David Gilroy
Lee, John


Biffen, Rt Hon John
Le Marchant, Spencer


Biggs-Davison, John
Lennox-Boyd, Hon Mark


Blackburn, John
Lewis, Kenneth (Rutland)


Boscawen, Hon Robert
Lloyd, Peter (Fareham)


Bottomley, Peter (W'wich W)
Luce, Richard


Bowden, Andrew
Lyell, Nicholas


Braine, Sir Bernard
Macfarlane, Neil


Brinton, Tim
MacGregor, John


Brittan, Leon
Macmillan, Rt Hon M.


Brown, Michael(Brigg &amp; Sc'n)
McNair-Wilson, M. (N'bury)
 
Browne, John (Winchester)
Major, John


Bruce-Gardyne, John
Marlow, Tony


Budgen, Nick
Marshall, Michael (Arundel)


Bulmer, Esmond Mates, Michael


Cadbury, Jocelyn
Mather, Carol


Carlisle, John (Luton West)
Maude, Rt Hon Sir Angus


Carlisle, Kenneth (Lincoln)
Mawby, Ray


Carlisle, Rt Hon M. (R'c'n)
Maxwell-Hyslop, Robin


Chalker, Mrs. Lynda
Mellor, David


Chapman, Sydney
Miller, Hal (B'grove)


Clark, Hon A. (Plym'th, S'n)
Mills, Iain (Meriden)


Clark, Sir W. (Croydon S)
Mills, Peter (West Devon)


Clarke, Kenneth (Rushcliffe)
Morgan, Geraint


Clegg, Sir Walter
Murphy, Christopher


Cockeram, Eric
Myles, David


Colvin, Michael
Neale, Gerrard


Cope, John
Needham, Richard


Costain, Sir Albert
Nelson, Anthony


Cranborne, Viscount
Newton, Tony


Critchley, Julian
Normanton, Tom


Crouch, David
Onslow, Cranley


Dean, Paul (North Somerset)
Page, Richard (SW Herts)


Dorrell, Stephen
Patten, John (Oxford)


Dover, Denshore
Percival, Sir Ian


du Cann, Rt Hon Edward
Powell, Rt Hon J.E. (S Down)


Dunn, Robert (Dartford)
Prentice, Rt Hon Reg


Dykes, Hugh
Price, Sir David (Eastleigh)


Eggar, Tim
Proctor, K. Harvey


Fairbairn, Nicholas
Pym, Rt Hon Francis


Fairgrieve, Russell
Raison, Timothy


Faith, Mrs Sheila Rathbone, Tim


Farr, John
Rees, Peter (Dover and Deal)


Fell, Anthony
Renton, Tim


Fenner, Mrs Peggy
Rhodes James, Robert


Fisher, Sir Nigel
Rhys Williams, Sir Brandon


Fletcher-Cooke, Sir Charles
Ridley, Hon Nicholas


Fookes, Miss Janet
Ridsdale, Sir Julian


Fowler, Rt Hon Norman
Rifkind, Malcolm


Galbraith, Hon T. G. D.
Rossi, Hugh


Gardiner, George (Reigate)
Royle, Sir Anthony


Garel-Jones, Tristan
Sainsbury, Hon Timothy


Goodlad, Alastair
St. John-Stevas, Rt Hon N.


Gow, Ian
Shaw, Giles (Pudsey)


Gray, Hamish
Shelton, William (Streatham)


Greenway, Harry
Shepherd, Colin (Hereford)


Griffiths, E.(B'y St. Edm'ds)
Shepherd, Richard


Griffiths, Peter Portsm'th N)
Shersby, Michael


Grylls, Michael
Sims, Roger


Gummer, John Selwyn
Skeet, T. H. H.


Hamilton, Hon A.
Speed, Keith


Hannam, John
Speller, Tony


Haselhurst, Alan
Spicer, Jim (West Dorset)


Hawksley, Warren
Sproat, Iain


Hayhoe, Barney
Stanbrook, Ivor


Heddle, John
Stevens, Martin
 

Henderson, Barry
Stokes, John


Holland, Philip (Carlton)
Stradling Thomas, J.


Hordern, Peter
Taylor, Teddy (S'end E)


Howell, Rt Hon D. (G'ldf'd)
Tebbit, Norman


Hunt, David (Wirral)
Thomas, Rt Hon Peter





Thompson, Donald
Warren, Kenneth


Thorne, Neil (Ilord South)
Watson, John


Thornton, Malcolm
Wells, John (Maidstone)


Townend, John (Bridlington)
Wells, Bowen


Townsend, Cyril D, (B'heath)
Wheeler, John


Trippier, David
Whitney, Raymond


Viggers, Peter
Wickenden, Keith


Waddington, David
Williams, D.(Montgomery)


Wainwright, R.(Colne V)
Wolfson, Mark


Wakeham, John
Younger, Rt Hon George


Waldegrave, Hon William



Walker, B. (Perth)
Tellers for the Ayes:


Walker-Smith, Rt Hon Sir D.
Mr. Peter Brooke and Lord James Douglas-Hamilton.


Waller, Gary



Ward, John





NOES


Allaun, Frank
Hughes, Robert (Aberdeen N)


Alton, David
Jay, Rt Hon Douglas


Archer, Rt Hon Peter
John, Brynmor


Ashton, Joe
Johnston, Russell (Inverness)


Atkinson, N.(H'gey,)
Jones, Barry (East Flint)


Bennett, Andrew(St'kp't N)
Kaufman, Rt Hon Gerald


Best, Keith
Kerr, Russell


Boothroyd, Miss Betty
Kilfedder, James A.


Bray, Dr Jeremy
Lamond, James


Brocklebank-Fowler, C.
Leighton, Ronald


Brown, Hugh D. (Provan)
Lofthouse, Geoffrey


Buchan, Norman
Lyon, Alexander (York)


Callaghan, Rt Hon J.
Lyons, Edward (Bradf'd W)


Callaghan, Jim (Midd't'n &amp; P)
McCartney, Hugh


Campbell-Savours, Dale
McElhone, Frank


Canavan, Dennis
McKay, Alien (Penistone)


Cartwright, John
McNally, Thomas


Clark, Dr David (S Shields)
Marshall, Dr Edmund (Goole)


Cocks, Rt Hon M. (B'stol S)
Martin, M(G'gow S'burn)


Concannon, Rt Hon J. D.
Mason, Rt Hon Roy


Cook, Robin F.
Millan, Rt Hon Bruce


Craigen, J. M.
Mitchell, Austin (Grimsby)


Cryer, Bob
Morris, Rt Hon A. (W'shawe)


Cunliffe, Lawrence
Morris, Rt Hon C. (O'shaw)


Davidson, Arthur
Morris, Rt Hon J. (Aberavon)


Davis, T. (B'ham, Stechf'd)
Morton, George


Deakins, Eric
Newens, Stanley


Dean, Joseph (Leeds West)
O'Neill, Martin


Dempsey, James
Orme, Rt Hon Stanley


Dewar, Donald
Owen, Rt Hon Dr David


Dixon, Donald
Parry, Robert


Dormand, Jack
Penhaligon, David


Douglas, Dick
Prescott, John


Dubs, Alfred
Price, C. (Lewisham W)


Duffy, A. E. P.
Radice, Giles


Dunlop, John
Richardson, Jo


Dunwoody, Hon Mrs G.
Roberts, Ernest (Hackney N)


Eadie, Alex
Robertson, George


Eastham, Ken
Roper, John


Ellis, Tom (Wrexham)
Rowlands, Ted


English, Michael
Sever, John


Ewing, Harry
Sheerman, Barry


Faulds, Andrew
Sheldon, Rt Hon R.


Fitt, Gerard
Shore, Rt Hon Peter


Fletcher, Ted (Darlington)
Silverman, Julius


Ford, Ben
Skinner, Dennis


Foster, Derek
Smith, Cyril (Rochdale)


Foulkes, George
Smith, Rt Hon J. (N Lanark)


Freud, Clement
Soley, Clive


Ginsburg, David
Spearing, Nigel


Graham, Ted
Spriggs, Leslie 


Grant, George (Morpeth)
Steel, Rt Hon David


Grimond, Rt Hon J.
Stewart, Rt Hon D. (W Isles)


Hamilton, W. W. (C'tral Fife)
Stoddart, David


Harrison, Rt Hon Walter
Straw, Jack


Hattersley, Rt Hon Roy
Thorne, Stan (Preston South)


Haynes, Frank
Tilley, John


Heffer, Eric S.
Tinn, James


Holland, S. (L'b'th, Vauxh'll)
Wainwright, E.(Dearne V)


Homewood, William
Wainwright, R.(Colne V)


Hooley, Frank
Weetch, Ken


Howells, Geraint
Welsh, Michael


Huckfield, Les
White, Frank R.






Whitlock, William
Wrigglesworth, Ian


Wigley, Dafydd
Young, David (Bolton E)


Willey, Rt Hon Frederick



Wilson, Gordon (Dundee E)
Tellers for the Noes:


Winnick, David
Mr. James Hamilton and Mr. Donald Coleman.


Woolmer, Kenneth

Question accordingly agreed to.

Clause 88 ordered to stand part of the Bill.

Schedule 11

LIFETIME RATES OF CAPITAL TRANSFER TAX

Question put, That this schedule be the eleventh schedule to the Bill.

The Committee divided: Ayes 180, Noes 125.

Division No. 180]
[7.10 pm


AYES


Alexander, Richard
Fowler, Rt Hon Norman


Alison, Michael
Galbraith, Hon T. G. D.


Ancram, Michael
Gardiner, George (Reigate)


Arnold, Tom
Garel-Jones, Tristan


Aspinwall, Jack
Goodlad, Alastair


Atkins, Robert(Preston N)
Gow, lan


Baker, Nicholas (N Dorset)
Gray, Hamish


Banks, Robert
Greenway, Harry


Bell, Sir Ronald
Griffiths, E.(B'y St. Edm'ds)


Bendall, Vivian
Griffiths, Peter Portsm'th N)


Benyon, Thomas (A'don)
Grylls, Michael


Berry, Hon Anthony
Gummer, John Selwyn


Bevan, David Gilroy
Hamilton, Hon A.


Biffen, Rt Hon John
Haselhurst, Alan


Biggs-Davison, John
Hawksley, Warren


Blackburn, John
Hayhoe, Barney


Boscawen, Hon Robert
Heddle, John


Bottomley, Peter (W'wich W)
Henderson, Barry


Bowden, Andrew
Hordern, Peter


Braine, Sir Bernard
Howell, Rt Hon D. (G'ldf'd)


Brinton, Tim
Hunt, David (Wirral)


Brittan, Leon
Hunt, John (Ravensbourne)


Brooke, Hon Peter
Hurd, Hon Douglas


Brown, Michael(Brigg &amp; Sc'n)
Jenkin, Rt Hon Patrick


Browne, John (Winchester)
Jopling, Rt Hon Michael


Bruce-Gardyne, John
Kaberry, Sir Donald


Budgen, Nick
Kimball, Marcus


Cadbury, Jocelyn
King, Rt Hon Tom


Carlisle, John (Luton West)
Kitson, Sir Timothy


Carlisle, Kenneth (Lincoln)
Lee, John


Carlisle, Rt Hon M. (R'c'n)
Le Marchant, Spencer


Chalker, Mrs. Lynda
Lewis, Kenneth (Rutland)


Chapman, Sydney
Lloyd, Peter (Fareham)


Clark, Hon A. (Plym'th, S'n)
Luce, Richard


Clark, Sir W. (Croydon S)
Lyell, Nicholas


Clegg, Sir Walter
Macfarlane, Neil


Cockeram, Eric
MacGregor, John


Colvin, Michael
Macmillan, Rt Hon M.


Cope, John
McNair-Wilson, M. (N'bury)


Costain, Sir Albert
Major, John


Cranborne, Viscount
Marlow, Tony


Crouch, David
Marshall, Michael (Arundel)


Dean, Paul (North Somerset)
Mates, Michael


Dorrell, Stephen
Mather, Carol


Dover, Denshore
Maude, Rt Hon Sir Angus


du Cann, Rt Hon Edward
Mawby, Ray


Dunn, Robert (Dartford)
Maxwell-Hyslop, Robin


Dykes, Hugh
Mellor, David


Eggar, Tim
Miller, Hal (B'grove)


Fairbairn, Nicholas
Mills, lain (Meriden)


Fairgrieve, Russell
Mills, Peter (West Devon)


Faith, Mrs Sheila
Morgan, Geraint


Farr, John
Murphy, Christopher


Fell, Anthony
Myles, David


Fenner, Mrs Peggy
Neale, Gerrard


Fisher, Sir Nigel
Needham, Richard


Fletcher-Cooke, Sir Charles
Nelson, Anthony


Fookes, Miss Janet
Newton, Tony





Normanton, Tom
Stevens, Martin


Onslow, Cranley
Stokes, John


Page, Richard (SW Herts)
Stradling Thomas, J.


Patten, John (Oxford)
Taylor, Teddy (S'end E)

 
Percival, Sir Ian
Tebbit, Norman


Powell, Rt Hon J.E. (S Down)
Thomas, Rt Hon Peter


Prentice, Rt Hon Reg
Thorne, Neil (Ilord South)


Price, Sir David (Eastleigh)
Thornton, Malcolm


Proctor, K. Harvey
Townend, John (Bridlington)


Pym, Rt Hon Francis
Townsend, Cyril D, (B'heath)


Raison, Timothy
Trippier, David


Rathbone, Tim
Viggers, Peter


Rees, Peter (Dover and Deal)
Waddington, David


Renton, Tim
Wakeham, John


Rhodes James, Robert
Waldegrave, Hon William


Rhys Williams, Sir Brandon
Walker, B. (Perth)


Ridley, Hon Nicholas
Walker-Smith, Rt Hon Sir D.


Ridsdale, Sir Julian
Waller, Gary


Rifkind, Malcolm
Ward, John


Rossi, Hugh
Warren, Kenneth


Royle, Sir Anthony
Watson, John

 Sainsbury, Hon Timothy
Wells, John (Maidstone)


St. John-Stevas, Rt Hon N.
Wells, Bowen


Shaw, Giles (Pudsey)
Wheeler, John


Shelton, William (Streatham)
Whitney, Raymond


Shepherd, Colin (Hereford)
Wickenden, Keith


Shepherd, Richard
Williams, D.(Montgomery)


Shersby, Michael
Wolfson, Mark


Sims, Roger
Younger, Rt Hon George


Skeet, T. H. H.



Speed, Keith
Tellers for the Ayes:


Speller, Tony
Lord James Douglas Hamilton and Mr. Donald Thompson.


Spicer, Jim (West Dorset)



Sproat, lain



Stanbrook, Ivor





NOES


Allaun, Frank
Foster, Derek


Alton, David
Foulkes, George


Archer, Rt Hon Peter
Freud, Clement


Ashton, Joe
Ginsburg, David


Atkinson, N.(H'gey,)
Graham, Ted


Bennett, Andrew(St'kp't N)
Grant, George (Morpeth)


Boothroyd, Miss Betty
Grimond, Rt Hon J.


Brocklebank-Fowler, C.
Hamilton, W. W. (C'tral Fife)


Brown, Hugh D. (Provan)
Harrison, Rt Hon Walter


Buchan, Norman
Hattersley, Rt Hon Roy


Callaghan, Rt Hon J.
Haynes, Frank


Callaghan, Jim (Midd't'n &amp; P)
Heffer, Eric S.


Campbell-Savours, Dale
Holland, S. (L'b'th, Vauxh'll)


Canavan, Dennis
Hooley, Frank


Cartwright, John
Howells, Geraint


Clark, Dr David (S Shields)
Huckfield, Les


Cocks, Rt Hon M. (B'stol S)
Hughes, Robert (Aberdeen N)


Concannon, Rt Hon J. D.
Jay, Rt Hon Douglas


Cook, Robin F.
John, Brynmor


Craigen, J. M.
Johnston, Russell (Inverness)


Cryer, Bob
Jones, Barry (East Flint)


Cunliffe, Lawrence
Kerr, Russell


Davidson, Arthur
Kilfedder, James A.


Davis, T. (B'ham, Stechf'd)
Lamond, James


Deakins, Eric
Leighton, Ronald


Dean, Joseph (Leeds West)
Lofthouse, Geoffrey


Dempsey, James
Lyon, Alexander (York)


Dewar, Donald
Lyons, Edward (Bradf'd W)


Dixon, Donald
McCartney, Hugh


Dormand, Jack
McElhone, Frank


Douglas, Dick
McKay, Allen (Penistone)


Dubs, Alfred
McNally, Thomas


Duffy, A. E. P.
Marshall, Dr Edmund (Goole)


Dunlop, John
Martin, M(G'gow S'burn)


Dunwoody, Hon Mrs G.
Mason, Rt Hon Roy


Eadie, Alex
Millan, Rt Hon Bruce


Eastham, Ken
Mitchell, Austin (Grimsby)


Ellis, Tom (Wrexham)
Morris, Rt Hon A. (W'shawe)


English, Michael
Morris, Rt Hon C. (O'shaw)


Ewing, Harry
Morris, Rt Hon J. (Aberavon)


Faulds, Andrew
Morton, George


Fitt, Gerard
Newens, Stanley


Fletcher, Ted (Darlington)
O'Neill, Martin






Owen, Rt Hon Dr David
Stoddart, David


Parry, Robert
Straw, Jack


Penhaligon, David
Thorne, Stan (Preston South)


Prescott, John
Tilley, John


Price, C. (Lewisham W)
Tinn, James


Radice, Giles
Wainwright, E.(Dearne V)


Richardson, Jo
Wainwright, R.(Colne V)


Roberts, Ernest (Hackney N)
Weetch, Ken


Robertson, George
Welsh, Michael


Roper, John
White, Frank R.


Rowlands, Ted
Wigley, Dafydd


Sever, John
Willey, Rt Hon Frederick


Sheerman, Barry
Wilson, Gordon (Dundee E)


Sheldon, Rt Hon R.
Winnick, David


Silverman, Julius
Woolmer, Kenneth


Skinner, Dennis
Wrigglesworth, Ian


Smith, Cyril (Rochdale)
Young, David (Bolton E)


Soley, Clive



Spearing, Nigel
Tellers for the Noes:


Spriggs, Leslie
Mr. James Hamilton and Mr. Donald Colman.


Steel, Rt Hon David



Stewart, Rt Hon D. (W Isles)

Question accordingly agreed to.

Clause 89

TEN-YEAR CUMULATION PERIOD

Mr. Richard Wainwright: I beg to move amendment No. 55, in page 76, line 26, leave out subsection (1) and insert—
'(1) Section 37(1) of the Finance Act 1975 (rate of tax charged on chargeable transfers) shall be amended as follows:

(a) After the words "chargeable transfer made by any transferor" there shall be inserted the words "to any transferee";
(b) After the words "that transferor" in subsection (1)(a) there shall be inserted the words "to that transferee";
(c) After the words "that transferor" wherever the same appear in subsection (1)(b) there shall be inserted the words "to that transferee".

(2) For the purposes of subsection (1) above there shall be aggregated (as if made to one transferee) the values transferred by chargeable transfers made by a transferor whereby property becomes held upon trusts under which no interest in possession subsists immediately after the transfer has been made.'.
Capital transfer tax was launched to further the admirable objective of an irreversible shift of wealth. It has failed. There is no sign of a shift and the yield from the tax has dropped since it was launched in 1975. To go back even further, if one takes the yield in real terms of estate duty and capital transfer tax in 1950 as 100, by last year it had fallen to 20. That is why the Labour Party is making heavy weather of defending capital transfer tax. Contrary to Labour's hopes years ago, the tax has not become the people's friend and nor has it become a great emblem of social reform.
My party has long believed, and stated when capital transfer tax was inaugurated, that it would fail to redistribute wealth because from its inception in 1894 tax capital tax has been a tax on the donor's estate instead of the recipient's, and so has not encouraged the wealthy to divide their gift among a number of recipients. They still concentrate an inheritance or gift on one person. The fact that it is not a tax on the recipient is at the heart of the failure to redistribute wealth through capital taxation.
The amendment is technically defective, but it attempts to make capital transfer tax recipient-based. We wish to see what is technically known as an accessions tax—namely, a swingeing capital transfer tax levied on the recipient, with the tax base and the rate of tax governed

by the total amount received in gifts and legacies from all donors during a recipient's life. It would be a powerful encouragement for the wealthy to subdivide their wealth, as only in that way could they minimise the tax bill for beneficiaries. For example, a properly graduated accessions tax would give a man with an estate worth £1 million the choice of leaving or giving it to only one person—in which case it would attract an enormously high rate of duty—or splitting it among 40, 50 or more donees, in which case practically no tax would be due.
It is not a novel concept. Had the House been well advised, way back in 1894 estate duty might have been launched on that principle. At the time A. J. Balfour stated:
in Heaven's name, apply graduation like rational beings and graduate property in proportion to the amount enjoyed, not to the amount left by those who can no longer enjoy it.
That was a splendid statement of the purpose of a donee-based accessions tax, and it applies in most parts of Europe.
The fatal handicap of the capital tax system that we have been lumbered with since 1894 is that it has simply transferred wealth from individuals to the State. There has been no redistribution directly to other citizens, which does not commend the tax to the generality of people, who do not see justice in huge estates passing into the maw of the State. It has not helped to build up a country of people of modest wealth, as many hon. Members would like to see.
It is time that we faced the fact that the basis of capital taxation over the past 81 years has failed. For instance, according to the former Royal Commission on the Distribution of Income and Wealth, on 1976 figures, and admittedly making no allowance for pension rights, which would modify the figures, 5 per cent. of the population owned 46 per cent. of the wealth. Only 40 per cent. of total wealth was owned by the bottom 90 per cent. of the population. Inheritance and large gifts are still a major cause of inequality.
If our amendment were adopted, improved and built on to reform the tax, it would become a great engine of voluntary redistribution. Small businesses would be helped. The successful founder of a business would be encouraged to divide it partly among a number of helpful and reliable employees instead of being tempted to pass it wholly to one or two members of his family, whose competence may be unproved or severely in doubt.
We would like to see the tax transformed to create an engine of redistribution instead of continuing the unsuccessful method of confiscation. I hope that the concept will appeal to both sides of the Committee. We shall not press the amendment to a vote on the present wording. To transform radically such a tax is not within the competence of amateur draftsmen. it may require major legislation. However, the amendment enables us to discuss a principle that is long overdue for serious debate.

Mr. Peter Rees: The hon. Member for Colne Valley (Mr. Wainwright) has initiated an interesting debate. It is not for the first time that we are indebted to the Liberal Party for generating a debate of this kind. My mind goes back to 25 January 1975 when Mr. John Pardoe, then the Member for Cornwall, North, initiated a similar discussion. I say that in no critical sense. The hon. Member for Colne Valley is right to go on stimulating us


to think and rethink about our various taxes. As he will have judged from my contributions in our last debate and from previous interventions I have made on the subject of capital transfer tax, I do not assert that CTT is a perfect tax, or even that, with all the assiduity we shall bring to its improvement and reform, it is ever likely to become a perfect tax. With the passage of time, however, we shall hope to eliminate some of the grosser imperfections.
It is important in an area such as this, where individual property owners must take decisions about the handling of their property—whether agricultural, industrial or merely quoted stocks and shares—to try to establish a measure of certainty. The framework at least should be relatively secure so that they can take these decisions with reasonable confidence. I hope that we shall never close our minds to improvement of the tax. The hon. Member reminded us that there are many precedents for what he has in mind in other EEC countries. Most of them go for a donee-based tax—not necessarily for an accessions tax. I was a little uncertain as to the precise form of tax the hon. Member had in mind.
I should be the last to take issue with the hon. Gentleman on the technicalities of the amendment, which is an irritating tendency on the part of Treasury Ministers when they criticise amendments. We are concerned here only with the principle. The hon. Gentleman will recall that the last Conservative Administration in 1972 produced a Green Paper on a possible inheritance tax. As I have always conceived the difference, with an inheritance tax pure and simple the measure of the charge depends on the amount received by the donee from one particular donor. An accessions tax is imposed on accretions to the wealth of an individual from whatever source.

Mr. Richard Wainwright: I can confirm for the Minister of State that under an accessions tax the gifts to one recipient, whatever the source, are accumulated and taxed.

Mr. Rees: I certainly seize the underlying theory of the hon. Gentleman's proposition—to encourage people to diffuse their wealth fairly widely. If an accessions tax were ever to commend itself to the House there would be a certain arbitrariness in its operation. The donor might not at any given time know the accretions of wealth to a particular donee. If the purpose of such a tax were to encourage the donor to diffuse his wealth as widely as possible, I suggest that possibly an inheritance tax might achieve that more readily. If the root concept which the hon. Gentleman is advocating is the widest possible diffusion it could be that that would be secured by an accessions tax, because in so far as these matters can be determined, obviously the donor would wish to diffuse his wealth among those donees who had received the fewest previous accretions.
Several practical difficulties must weigh with us, however. I appreciate that the hon. Gentleman does not expect the walls of Jericho to fall on this occasion, or even perhaps in the lifetime of this Parliament. No doubt, with the assiduity which characterises his interventions, and which characterised those of Mr. John Pardoe in these matters, the hon. Gentleman may want to return to this matter in later Parliaments. The hon. Gentleman's proposal would involve possible fragmentation of economic assets. There is then the argument between distribution and efficiency. It can be argued—we are

talking in generalities and not in particular cases—that it is better to ensure that, for example, a viable unit, whether it be a farm or a company or even an unincorporated business, should be passed on intact to the next generation.
An accessions or inheritance tax would tend to lead to the fragmentation of such units. Again, therefore, it would be a matter for the House to decide between the conflicting principles of economic efficiency and wider distribution. This is precisely the issue that arises in considering the relative advantages of primogeniture as against the Code Napoleon. I imagine that the diffusion of wealth was one of the reasons that led Napoleon Ito introduce his code in that regard. I am not persuaded that over the intervening century and a half the British economy has fared 'worse than the French economy, or that, if it has, it is because we have not adopted some measure, whether it be something like the Code Napoleon or an accessions tax such as the hon. Member suggests to diffuse wealth. That issue would have to be debated more thoroughly than we are able to debate it tonight.
Secondly, an accessions tax would add to the already formidable complications of the taxes on the transmission of wealth that we encounter with the CTT. It would certainly be a more difficult tax to administer. It would be for the House to determine, however, whether administrative complications outweighed the possible social advantages.
Finally, very few forms of inheritance or accessions tax that I have studied would deal adequately with trust property. This is a special feature of British property law which is not reproduced to anything like the same degree—indeed, if at all—elsewhere in the Community.
Although I am not unsympathetic to the underlying theme of the amendment, for the reasons that I have given I must advise the Committee to reject the amendment. In his usual agreeable way the hon. Member for Colne Valley has wished to ventilate this point to enable us to debate the principles. I hope that he will feel that we have at least, in the relatively early stages of this Parliament, come back to an important theme and given it a little thought. Perhaps we may put it aside until some later Parliament when the country may feel that a further overhaul of our tax system is necessary.

Mr. Richard Wainwright: The Committee will have noticed that the Minister of State did not launch on any major defence of capital transfer tax as it stands. I acknowledge that with hope. Before many years are out there may have to be a major reform of capital taxation, if only to help to keep social peace and to ensure a greater measure of justice.
The hon. and learned Gentleman made some play of what he considered to be the advantages of an inheritence tax where the recipient's graduated scale of paying the tax would not apply to every gift that he or she received regardless of source, but simply to each set of gifts from one source. There is little equity in that sort of inheritance tax because a second generation could become very rich on the basis of gifts from different sources which under an inheritance tax would not be accumulated in order to establish a rate of tax.
I also believe that an inheritance tax is wide open to avoidance because if there is no accumulation of all gifts regardless of the source, it is open to potential donors to get together and plan an operation in which each of them


will give relatively modest gifts to a variety of persons. Because there is no total accumulation they will be able to achieve a very low rate of tax for a lucky recipient.
On technical grounds, there is little to be said for an inheritance tax and a great deal to be said—as some countries have discovered—for an accessions tax. Anyone who advocates a serious degree of capital taxation must face the problem of fragmentation of businesses and farms. Although there are dangers of fragmentation, the horrors of it are greatly exaggerated. I practised as an accountant for 25 years. During that time, my general observation—it is a generalisation and, therefore, risky—was that the ideal family business was not under the direction of one family or even two, but under that of three, or four unrelated families, between whom there could be a certain amount of creative tension. Because of their wider span there is a more sporting chance that each generation in that mix of three, four, or five families will produce a bright child to manage the business.
There is not necessarily a correlation between defending small and medium-sized businesses—as, like most hon. Members, I vigorously do—and maintaining that they must remain in the proprietorship of one family. Such a correlation is often alleged. However, it does great harm to the cause of small businesses. It is a defence of privileged wealth rather than a defence of the economic efficiency and social value of small businesses.
I turn to the last major difficulty that the Minister raised. This year, Treasury Ministers are making less play than usual of administrative costs and of the burden of maintaining the staff required. That is a welcome relief to those of us who believe that a civilised tax system is worth an administrative cost and who do not shrink from more Inland Revenue staff in the cause of equity and expedition in taxation.
This year, the Government cannot make much play of their traditional defence, because they have just added 3,500 people to the staff of the Inland Revenue to embark on this extraordinary adventure of taxing unemployment benefit and other social security benefits. Therefore, the extra administrative burden of an accessions tax—in which the rate of tax would depend upon the accumulation thus far in life or all gifts of legacies to the taxpayer concerned—would be almost entirely clerical compared with capital transfer tax. Obviously, a record would have to be kept of all those who had received substantial gifts. However, I hope that such an operation would be computerised and would not involve a substantial amount of extra administrative expertise.
I hope that the Minister will accept that this is an important subject that requires further investigation. When the Inland Revenue is allowed to acquire a full-time research staff, I hope that this change in taxation will be high on its agenda. Given the admitted defects in the amendment's drafting—which I fear were inevitable—I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Mr. Jack Straw: The central objection to the old estate duty, which capital transfer tax replaced in 1975, was that it could be avoided altogether by transfers

that were made seven years or more before death. Essentially, it was a voluntary tax and, therefore, an unfair one. It taxed only the unlucky, those who died prematurely, or the ill-advised. The prime purpose of capital transfer tax was to tax capital transfers whenever they took place, in life or at death.
Since the idea of the tax was that it should be a progressive one—taxing proportionately more those whose wealth was the greatest—the tax charge in a lifetime had to be a cumulative one. Obviously, if the tax had been annual, the wealthiest could have transferred the whole of their wealth in yearly parcels at just below the tax threshold and could have avoided the tax altogether. In 1975 the House decided on a system of capital transfer tax. It said that a man, for example, with £250,000 who transferred half of his wealth during his lifetime and left the other half upon death should be in roughly the same position in terms of the tax charge as the man who made no transfers in life and who left the whole sum on death. Therefore, the lifetime accumulation of transfers for tax purposes was central to the fair and effective operation of capital transfer tax.
I have spelt that out because no one should be in any doubt about the significance of the clause. By the apparently technical device of replacing the lifetime accumulation rule with a 10-year accumulation rule, the Government have effectively abolished a central principle of capital transfer tax and have undermined its main purpose. Of all the decisions that the Government have taken to transfer tax from the poor to the rich and to widen inequalities of wealth, the one contained in the clause is the most significant. It will have profound implications for the distribution of wealth.
We should look at the full consequences of this substantial concession. We should consider the consequence of its cost. My hon. Friend the Member for Edinburgh, Central (Mr. Cook) raised this subject in the debate on clause 88. The Minister appears to be reaching for his Red Book again. I refer him to page 10, and to footnote (i), in the text where the Government should have come clean and spelt out the cost of the concession. When the Minister replied to clause 88 Labour Members noticed his silence on the cost of the concession. We want to know the Government's estimate. Why do they say that the cost of the concession cannot be estimated? Do they think that it is prudent to run the nation's affairs by embarking on significant and substantial tax concessions without working out their cost?
If the Minister cannot estimate the cost of the concession to the nearest £1 million, will he estimate the cost to the nearest £100 million? I hope that he will do so. When the Government took their decision they must have had some idea of the cost involved. Let the Minister tell the House. In our judgment the cost is great, and is likely further to reduce the return on capital transfer tax. Over the next few years it will reduce it at a time when there would have been an increasing yield from capital transfer tax if the old lifetime accumulation rules had remained.
If the Opposition cannot estimate the cost of this concession, we can at least make some estimate of its benefit to individuals. The 10-year accumulation rule means that a husband and wife can transfer £100,000, for example, to their son or daughter every 10 years without incurring a tax charge. In addition, as a result of the change in the Budget to increase the annual tax-free concession on transfers from £2,000 to £3,000, a husband


and wife can transfer another £60,000 to their children or to anybody else over a period of 10 years. The effect of the changes made in the Budget means that a husband and wife can together transfer £560,000 every 10 years to their children or anyone else without incurring liability to tax.
Let us take the example of someone in middle age who, after building up a business, decides to sell it to a public company and receives, let us say, £560,000 for the sale of his family company. He wants to transfer that wealth to his children without incurring a tax charge. If he survives—assuming that he has no other estate—for 33 years after the sale, he can dispose of his £560,000 without tax. In my estimate he would have saved £155,000 in tax had the lifetime accumulations rules remained and the concession on the annual amounts, which are tax-free also, not been raised. Even if that person died after 21 years he would have saved £90,000 in tax on a total estate of £560,000.
Some of my hon. Friends may say that they know few people who have £560,000. That is not true, because we all know the Prime Minister. In 1965, the Prime Minister's husband sold his interest in the Atlas Preservative Company to Burmah Oil for that sum. If he had sold that interest in the Atlas Preservative Company today for £560,000 and survived for 21 years thereafter—and adopted the practice that I have suggested—he would have saved £95,000 in tax. If he lives for 33 years afterwards he will save £155,000 in tax. That is a measure of the concessions that the Government have made in the Bill to the wealthy.
But the Prime Minister and her husband are by no means the wealthiest in the Cabinet. There are many others who are far wealthier than the Prime Minister. I have counted eight Cabinet Ministers who come into the category of millionaires.

Mr. Cook: None of them is the Duke of Westminster.

Mr. Straw: My hon. Friend is quite correct. There is the Home Secretary, the Secretary of State for Industry, the Leader of the House, and the Secretary of State for Employment, who I am told has farms and land valued at £700,000. The Lord Privy Seal is heir to his father's industrial estate in Scotland and to another substantial fortune. The Minister of Agriculture, Fisheries and Food sold his shareholding in Slater Walker in 1970 for £405,000 and sold an estate in 1976 for a further £250,000. The Secretary of State for the Environment has a £600,000 majority shareholding in the Haymarket Press. The Secretary of State for Scotland, who I am told will one day become a viscount and, if preferment comes his way, a duke—has substantial interests in a family brewery and an estate.
I estimate that those eight Cabinet Ministers who have substantial individual holdings near the £1 million mark will save about £1 million collectively by the concessions being made by the Government. No ordinary members of the public will benefit from these concessions, but eight of the wealthiest members of the Cabinet, if they play the rules, as no doubt they will be advised to play them—they will have excellent advice from the Minister of State—will save about £ 1 million. That is a low estimate of the benefits that they will receive, provided that they survive for more than 10 years to take the benefits of the lifetime accumulation provisions.

Mr. Cook: They will not survive in the Cabinet for 10 years.

Mr. Straw: Those Ministers will not survive in the Cabinet for 10 years, but I suspect that they will be wished a long and happy life, after they are pushed out, to enable them to retire to their noble estates. One of the facts of life is that those who are wealthy tend to live much longer than those in social classes 4 and 5, who work themselves into an early grave and die much earlier than those who do not have to work.

Mr. David Winnick: Does my hon. Friend agree that those who will substantially benefit, especially members of the Cabinet, should declare an interest? I am not aware that one person, the Prime Minister or anyone else, has yet declared such an interest.

Mr. Straw: Neither am I. Much of the information provided in the business background of hon. Members has had to be elicited from Conservative Members rather than being volunteered. It is no wonder that the Minister of State, in his speech to the London Society of Chartered Accountants on 21 October last year, said:
In practical terms much more has already been done than many people realise".
That is so, but one group that realised that much had been done consisted of the members of the Cabinet and their colleagues.
Why do we object so fundamentally to the change? First, we object because of its inequity and the way in which it will greatly increase the inequalities of wealth in this country. In the same speech the Minister said:
at a time when the scope for general tax reductions is not great it may well be difficult to move as fast and as far as we would like.
The Minister is correct in saying that the scope for general tax reductions has not been great under this Government. There have been no tax reductions under this Government for the majority of the population, but it has suffered tax increases. It is sheer humbug for the Minister to say that it has been difficult for the Government to move as fast and as far as they would have liked on capital transfer tax. The truth is that the Government have moved fast and far on capital transfer tax, and by the concessions made last year and this they have essentially turned the tax once again into a voluntary tax for the ill-advised or for those who have the misfortune to die early.
I would that the Government had shown the same resolve as they have in so quickly undermining the capital transfer tax and in creating jobs for people and finding opportunities for school leavers and the long-term unemployed, and as they have in lining the pockets of themselves, their families and the rich, whom they represent.
While the Minister and his colleagues may not be worried about the way in which the changes are producing inequalities between the rich and the poor, they should be concerned about the way that the clause will produce inequalities between one kind of rich and another. The clause 89 perversely discriminates against self-made business men and in favour of the landed gentry and those who inherit wealth. The Government should reflect on how that discrimination against small business men has come from a Government who, of all Conservative Governments since the war, is the Government who have trumpeted their concern for small businesses. When the


Prime Minister was leading for the Opposition on the Finance Bill in 1974 and 1975 on capital transfer tax she said:
when we consider the effect of the taxes at present proposed on small businesses, the only rational conclusion is that the Chancellor and his hon. Friends are out to destroy them."—[Official Report, 17 December 1974; Vol. 883, c. 1396–1397.]
That view was echoed by the present Secretary of State for Defence in backing up the Prime Minister. He said:
the Tory Party exists as much as anything to represent the continuity of family life and the family business and family farm."—[Official Report, 22 January 1975; Vol. 884, c. 1477.]
The 10-year accumulation period favours those who inherit their wealth early and discriminates against those businessmen who start off from nothing and gradually build businesses until, at the age of 55 or 60, they find that they can transfer their business to a public company and realise the capital gain and the value of the business. If the Government seek to help the people whom they favour most—the so-called wealth creators who start with nothing and build up their businesses—they should introduce a concession for them instead of for people who inherit their wealth.

8 pm

Mr. Straw: People who have built up their businesses and cannot sell them until late in their working life and who, unlike the idle rich, are likely to die early of a heart attack through over work, are penalised.
We also object to the concession because of the yield. The Government must say what they expect to lose as a result of this substantial concession and change in capital transfer tax. If the Minister fails to give an adequate explanation why the cost of the concession cannot be estimated, and was not even estimated when the Treasury devised the Budget, he must never complain about amendments that prevent the Government from raising taxation in this way.
Nothing illustrates more clearly the irresponsibility of the Government in terms of their overall economic policy and the say in which they have helped the rich and discriminated against the working population and the poor than the fact that they cost every charge that they heap on the poor and the working population but when they make a massive concession to the rich and wealthy they cannot even be bothered to work out the cost to the country. For those and other reasons we oppose the clause.

Mr. Campbell-Savours: I draw the attention of the Committee to the Conservative Party campaign guide issued in 1977. It is good reading, and I always bring it to such debates because it offers background to comments made by Conservative Members. Referring to taxation, it states that Conservatives
intend to reduce the overall burden of tax".
It qualifies that by saying
as soon as the economic situation permits.
That means, when the economic position has been sufficiently revitalised to provide spare public expenditure for areas of taxation and taxation change to which the Government give priority. It means that under such conditions the Government would propose changes such as those contained in the clause.
I have dealt with the principle behind the Government's strategy. I turn to considering how they identify the priorities. The campaign guide was used by Conservative

candidates throughout the country to advance the case for Conservatism at the general election. On priorities, the guide states that in
The Right Approach To The Economy
of October 1977—and I am sure that hon. Members will not wish to disown that document—under personal taxation it says:
A reduction in the load of personal taxation is given top priority"—
as we have seen in the last Budget. The document continues:
It will be financed by expenditure economies, by that part of North Sea oil revenues that can be spared from debt repayment, and if necessary by a switch from direct to indirect taxation.
We should, of course, need to take account of the effect of any such change on the living standards of poorer families—especially those who depend entirely on certain social security benefits.
They were the priorities when the Conservatives sought the support of the people to form the Government. They have reversed their priorities. Even the principle has been changed to accommodate the prejudices of Conservative Members.
The reality is that the Bill introduces changes which will affect the lives and standards of living of hundreds of thousands, if not millions, of people. The money raised on the back of a series of repugnant clauses before the Committee yesterday is being given back to a small minority of people—the rich, the wealthy and the privileged.
Another aspect grieves me particularly. If Conservative Members consider carefully they will decide that the clause does not provide an incentive. I believe firmly that reducing the load of capital transfer taxation by enabling one generation to transfer wealth to another easily, without penalty and in a way which allegedly aids that following generation, does not act as an incentive. It is a positive disincentive.
Some people—not the landed gentry or Members who have inherited large tranches of wealth—pulled them-selves up by their bootlaces and made every effort many years ago, with little in their pockets but with sheer determination, to set up companies. They were excellent entrepreneurs in their way. They built the machinery with the help of the people whom they hired and generated the wealth which is regarded as so crucial. They were never helped by inherited wealth. If many of those people had inherited wealth in the post-war years, they would never have surfaced as successful entrepreneurs. The incentive was that they did not inherit wealth. They set out to create and generate wealth in the belief that they were capable of doing that.
When the Minister of State replied to the amendment tabled by the hon. Member for Colne Valley (Mr. Wainwright), he was cool and rational. He was particularly lucid, reasonable and understanding. He should adopt the same approach to the question of inheritance taxation, capital transfer taxation and other taxes based on capital. Perhaps the Conservative Party should re-examine its position. I believe that Conservatives are making a grave mistake. They misunderstand what drives the classic entrepreneur—the man or women who supports them.
The clause will give a very few people a large amount of wealth for doing nothing at all. It will also destroy for another small number of people the opportunity of setting up in business, recognising their own abilities and


acquiring an experience in life, the great joie de vivre or enjoyment that stems from making that vitally important contribution to the future industrial development of our society.

Mr. Winnick: Yesterday we debated the Government's proposals to penalise the unemployed and those on supplementary benefit as well as those who have the audacity to go on strike. Today we are debating another section of the community—the richest and the most prosperous. There could not be a greater contrast between the attitude of the Conservative Government towards the poorest, so often the victims of Conservative economic policies, and the other small and powerful group which is well represented on the Conservative Benches, certainly on the Front Bench, who will do very well out of the clause. The richest and the most prosperous will no longer be hurt in any way by the capital transfer tax which was introduced by the Labour Government.
One of the saddest features of Britain is the vast concentration of private wealth in relatively few hands. There has been very little progress—under Labour Governments, too, though we started in the right direction. We live in a society where 1 per cent. of the adult population—no more—still controls nearly 25 per cent. of private wealth, and where 5 per cent. own about 44 per cent. of all such accumulated wealth in the country. Inheritance has undoubtedly ensured that such vast concentrations of private wealth have continued. That is not disputed. Until something is done about it, we shall remain a very unequal society.
I do not deny that my right hon. Friend the Member for Leeds, East (Mr. Healey), when he was Chancellor of the Exchequer, made concessions that were welcomed at the time by the Conservative Party. I wish that he had not made those concessions, but at least he introduced the capital transfer tax and at least, given time and without the sort of concessions that were unfortunate and perhaps unavoidable in the circumstances, we could be working towards a more equal society than is likely to occur if clause 89 is accepted.
The clause drives a coach and horses through the capital transfer tax. One wonders why the tax is being allowed to continue at all. What purpose will it serve—except cosmetic purposes? Perhaps the Government have decided that it would not be right to take away capital transfer tax, and that they should simply destroy its effectiveness. Why should anyone bother to pay the tax under the clause? What purpose is served, unless, purely from ill luck, one dies before the 10 years are up and before the donor has lived 10 years afterwards? Otherwise it would seem ridiculous for anyone to pay the tax. I do not blame rich people for using the clause, as they will. They are not to blame. Why should they be blamed? They are being provided with the necessary legislation to assist them. They would be foolish not to use the ammunition and the assistance that are being given by this Government to the rich and prosperous in our community.
As my hon. Friend the Member for Blackburn (Mr. Straw) has said, the tax would clearly be of greater use among the rich to those who have inherited their wealth. The self-made man takes time to make money. By the time that he has made sufficient money to be in a position to give it away during his lifetime, he will be much older than the younger rich person in early middle age who will find

it most beneficial to give his money away in gifts as quickly as possible to make sure that no tax is paid within the first 10 years.
8.15 pm
Sometimes we are given lectures by Conservative Members about the way in which they want to help the self-made man. However, when it comes to a choice between the self-made man and those who inherit their wealth, they help those who inherit their wealth. Of course, the clause is a godsend to the rich, and that is what it is meant to be.
When I consider how offensive the clause is, I cannot forget the many people in my constituency and in the constituencies of my right hon. and hon. Friends who are in great financial difficulty. I cannot forget the letters that I receive, for example, from widows who understandably complain about the amount of tax that they pay on their small income. I think, too, of the many elderly people in my constituency who need help with paying their fuel bills but who are unlikely to get it unless they are on supplementary benefit. I think of the unemployed who are desperately trying to make ends meet and whose unemployment benefit was increased by 5 per cent. less than the rate of inflation. Such people are being penalised by this Government, and yet the Government are assisting people who have vast amounts of private money
My hon. Friend the Member for Blackburn was right to ask "How much will it all cost?" When we ask about our constituents who need help, we are constantly told "There may be a case, but there is not the money. We cannot increase public expenditure." Yet how much will the Revenue lose as a result of the concessions in this clause? The Government view the matter in such a lighthearted fashion that they have not even given a figure, so clearly determined are they to assist the people whom they represent. The Government's attitude was summed up in our debate yesterday, and also in this debate. The Government are totally dedicated to transferring more wealth to the richest people in our society. There is a lesson for my right hon. and hon. Friends. If the Government are so single-minded in their determination to help the rich, surely the lesson for us is that when Labour comes to power we must be just as determined and single-minded in acting on behalf of the people whom we represent. Some of us on the Labour Back Benches sometimes criticise Labour Governments because they tend to be a little weak and do not have the single-mindedness and dedication of Tory Governments. We must learn the lesson and ensure that the next Labour Government bring in a new capital transfer tax and withdraw so many of the concessions now being made. That will be the right way for a Labour Government to act.
I want a more equal society. If I have the good fortune to live to a ripe old age, I do not want to have to say that 1 per cent. of the adult population still owns and controls vast amounts of wealth, like now—almost 25 per cent. A society in which there is such a contrast between the vast majority of people who own so very little and the remaining 5 per cent., 6 per cent. or 7 per cent. who own so much is sick. I want to end that situation, and the way to do so is by having a Labour Government with the same determination to advance the interests of the people that we represent as this Tory Government have shown on behalf of the rich.

Mr. Peter Rees: The hon. Member for Blackburn (Mr. Straw) is capable of careful and thoughtful speech. I cannot say that his intervention on this occasion has lived up to what we have come to expect of him. His tone seemed to colour the subsequent contributions from the Opposition Benches.

Mr. Austin Mitchell: The Minister was not here then.

Mr. Rees: I am entitled to make certain criticisms of Opposition Front Bench contributions. On previous occasions we have had some thoughtful, penetrating analyses of the problems that we debated. I do not know whether the hon. Member for Grimsby (Mr. Mitchell) can speak on these matters.
Although it was not easy to detect, we have been debating clause 89. Much play was made of the question of cost by the hon. Members for Blackburn and Walsall, North (Mr. Winnick). As always, because the Opposition adhere to the conspiratorial theme, they suggested that there was a gigantic cover-up. The cost of clause 89 is shown as nil for the year 1981–82, and a footnote states that it is difficult to estimate for subsequent years.
I want to put the problem in perspective. The hon. Member for Blackburn, in a wild flight of fancy, suggested that it should be calculated to at least the nearest £100 million. The yield of capital transfer tax is about £425 million. We estimate that, of that yield, the charge on lifetime transfers has been £5 million a year to date. Therefore, even with all the resources commanded by the Labour Administration, with a dedicated and intelligent Chancellor, that was the yield on lifetime transfers. That does not suggest that we are talking about sums of £100 million.

Mr. Straw: When the Minister elucidates on that question, will he accept that there is no comparison between the yield of lifetime transfers, when there was the lifetime accumulation rule, and the yield that will be lost on death under the proposed 10-year accumulation rule? There was by no means as much incentive under the previous arrangement for people to transfer during their lifetime. Under the new arrangements, there will be a substantial incentive for people to transfer during their lifetime to avoid a charge of tax on their death.

Mr. Rees: The hon. Gentleman has made the most powerful case for introducing the provision that I have yet heard. I had intended to make that point later. Of course, people have been discouraged from making lifetime transfers—not withstanding the concessions introduced by the previous Labour Administration which the hon. Member for Walsall, North found so offensive—because of the way that the tax is structured.
Under the combination of clauses 88 and 89, if they commend themselves to the Committee, there will be a flow of lifetime transfers. Therefore, the yield of capital transfer tax may increase rather than decrease. The hon. Member for Blackburn wanted me to elaborate on why it is difficult to give a precise figure. He will realise that the tax will not have been in operation for 10 years until 1984. It is difficult to know precisely—although one can guess in general terms—what the pattern will be with the new arrangements for lifetime transfers as exemplified in schedule 11 and with the 10-year accumulation period.
Far from there being a loss of revenue, there may be an increase. That should gladden the heart not only of the

hon. Member for Blackburn but the hon. Members for Workington (Mr. Campbell-Savours) and Walsall, North. They have debated the matter in a high flow of rhetoric, which no doubt commends them to their constituency associations, but they have not penetrated deeply into the heart of the problem. I commend the provison to the Committee because it will probably stimulate a flow of lifetime transfers, stimulate the mobility of property between one generation and the next and simplify the system for the taxpayer who will have to keep a record of his transfers for only 10 years rather than for a lifetime.
There seems to have been a certain misconception in the mind of the hon. Member for Blackburn about the distribution of wealth between the two parties in the House. If he wants to initiate a serious debate, I can only say that it cheapens our debate to speculate on the wealth in either party. He might care to consider whether there are not certain accumulations of wealth even in the higher reaches of his party. It does not advance serious consideration of a serious subject if he treats the subject in the way that he did. I am sure that when he reflects on the matter he will realise that he did not do himself, the subject or his party full justice. It is better to confine the debate to the more important aspects. As I have already said, the provision will probably increase the flow of the revenue to the Exchequer, increase the flow of lifetime transfers and simplify the system for taxpayers.
The hon. Member for Workington was kind enough to say that at one point in our debates I had been lucid and reasonable. That was because I was responding to a lucid and reasonable argument in favour of an inheritance or accession tax put forward by the hon. Member for Colne Valley (Mr. Wainwright). On this occasion we have had a trivial debate riddled with cliches about the class war. The case against the provision is shown in the triviality of the speeches from the Opposition Benches. I hope that my hon. Friends, who have devoted considerably more thought to the clause than have Opposition Members, will recognise its merits and support it in the Lobbies tonight.

Mr. Straw: As the Minister has set the tone by offering compliments to Opposition speakers, I must tell him that the Opposition found his arguments less than convincing, especially those about the cost of the concession. His explanation as to why there might be an increase in revenue from the substantial concession—it has been described as a concession to those paying the terrible burdens of capital transfer tax—defies the imagination.
The Minister was right, and he accepted that I was right, to say that there would be an increase in lifetime transfers under the new arrangement. He must ask himself why that will happen. It is because it is more attractive for people to transfer during their life rather than to leave their property on death. It is more attractive to do so for two reasons. First, the lifetime rates are substantially below the rates on death, and secondly, the effect of the changes made this year and last year mean that a husband and wife can now transfer £160,000 every ten years free of tax.
The combination of lower rates and the fact that over a 30-year span someone who has inherited £500,000 at the age of 30 years may dispose of that total sum without having to pay a penny piece in tax must mean in common sense that there will be a loss of revenue. If, as we suspect, the clause and the Bill pass through the House of Commons and are enacted, we shall carefully monitor the progress of these provisions and their yield.
8.30 pm
If the Minister of State is convinced that these proposals will increase rather than decrease revenue, he is probably the only man in the United Kingdom who holds that belief. It is utter nonsense. In an explanation of the substantial changes that are being made to capital transfer tax, even the The Times commented:
For most people capital transfer tax has, as a result of this Budget, become close to being a voluntary tax, or at least a tax on the badly advised.
If it is a voluntary tax, it will be a tax paid in far smaller amounts than would have been so—

Mr. Campbell-Savours: Will my hon. Friend try to draw the Minister on the vital issue of incentives? The hon. and learned Gentleman has argued that the introduction of the clause would be an incentive to small businesses and for others to set up small businesses. Surely it needs to be proved to the Committee that the hon. and learned Gentleman has a case. He has not answered the suggestions of my hon. Friends that his argument is incorrect.

Mr. Straw: I agree that the Minister has answered neither that argument nor those advanced in drawing attention to the way in which the changes embodied in clause 89 discriminate against the self-made man in favour of those who inherit wealth. The Minister merely dismissed our comments as trivial and said that they lowered the tone of the debate. I should be delighted to give way to him if he wished to answer our contentions. I suspect that he wishes to stay in his place.
The clause embodies a concession that is deeply unfair. It drives a coach and horses through the concept of capital transfer tax and once again makes it a voluntary tax. The provisions will work in favour of the well-advised, the wealthy, and those who inherit their wealth and against small businessmen who put together their businesses over many years and who do not have the benefit of advice from gentlemen such as the Minister of State. They will find themselves paying for the concessions that are given to others.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 163, Noes 110.

Division No. 181]
[8.32 pm


AYES


Alexander, Richard
Carlisle, Rt Hon M. (R'c'n )


Alison, Michael
Chalker, Mrs. Lynda


Ancram, Michael
Chapman, Sydney


Arnold, Tom
Clark, Hon A. (Plym'th, S'n)


Aspinwall, Jack
Clark, Sir W. (Croydon S)


Baker, Nicholas (N Dorset)
Clegg, Sir Walter


Banks, Robert
Cockeram, Eric


Bendall, Vivian
Colvin, Michael


Benyon, Thomas (A'don)
Cope, John


Berry, Hon Anthony
Costain, Sir Albert


Bevan, David Gilroy
Cranborne, Viscount


Biffen, Rt Hon John
Crouch, David


Biggs-Davison, John
Dean, Paul (North Somerset)


Blackburn, John
Dorrell, Stephen


Bowden, Andrew
Dover, Denshore


Braine, Sir Bernard
du Cann, Rt Hon Edward


Brinton, Tim
Dunlop, John


Brittan, Leon
Dunn, Robert (Dartford)


Brooke, Hon Peter
Eggar, Tim


Brown, Michael(Brigg &amp; Sc'n)
Fairbairn, Nicholas


Browne, John (Winchester)
Fairgrieve, Russell


Bruce-Gardyne, John
Faith, Mrs Sheila


Budgen, Nick
Farr, John


Cadbury, Jocelyn
Fenner, Mrs Peggy


Carlisle, John (Luton West)
Fisher, Sir Nigel


Carlisle, Kenneth (Lincoln)
Fletcher-Cooke, Sir Charles





Galbraith, Hon T. G. D.
Proctor, K. Harvey


Gardiner, George (Reigate)
Raison, Timothy


Garel-Jones, Tristan
Rathbone, Tim


Goodlad, Alastair
Rees, Peter (Dover and Deal)


Gow, Ian
Renton, Tim


Gray, Hamish
Rhodes James, Robert


Greenway, Harry
Rhys Williams, Sir Brandon


Griffiths, Peter Portsm'th N)
Ridsdale, Sir Julian


Gummer, John Selwyn
Rifkind, Malcolm


Haselhurst, Alan
Rossi, Hugh


Hawksley, Warren
Royle, Sir Anthony


Hayhoe, Barney
Sainsbury, Hon Timothy


Heddle, John
St. John-Stevas, Rt Hon N.


Henderson, Barry
Shaw, Giles (Pudsey)


Hordern, Peter
Shelton, William (Streatham)


Hunt, David (Wirral)
Shepherd, Colin (Hereford)


Hunt, John (Ravensbourne)
Sims, Roger


Hurd, Hon Douglas
Skeet, T. H. H.


Jenkin, Rt Hon Patrick
Speed, Keith


Johnson Smith, Geoffrey
Speller, Tony


Jopling, Rt Hon Michael
Spicer, Jim (West Dorset)


Kaberry, Sir Donald
Sproat, lain


King, Rt Hon Tom
Stanbrook, Ivor


Kitson, Sir Timothy
Stanley, John


Lee, John
Stevens, Martin


Le Marchant, Spencer
Stokes, John


Lloyd, Peter (Fareham)
Stradling Thomas, J.


Luce, Richard
Taylor, Teddy (S'end E)


Lyell, Nicholas
Tebbit, Norman


Macfarlane, Neil
Thatcher, Rt Hon Mrs M.


MacGregor, John
Thomas, Rt Hon Peter


McNair-Wilson, M. (N'bury)
Thompson, Donald


Major, John
Thorne, Neil (Ilford South)


Marlow, Tony
Thornton, Malcolm


Marshall, Michael (Arundel)
Townend, John (Bridlington)


Mates, Michael
Trippier, David


Mather, Carol
Viggers, Peter


Maude, Rt Hon Sir Angus
Waddington, David


Mawby, Ray
Wakeham, John


Maxwell-Hyslop, Robin
Waldegrave, Hon William


Mellor, David
Walker, B. (Perth)


Miller, Hal (B'grove)
Walker-Smith, Rt Hon Sir D.


Mills, Iain (Meriden)
Ward, John


Mills, Peter (West Devon)
Warren, Kenneth


Morgan, Geraint
Watson, John


Murphy, Christopher
Wells, John (Maidstone)


Myles, David
Wells, Bowen


Needham, Richard
Wheeler, John


Nelson, Anthony
Whitney, Raymond


Newton, Tony
Wickenden, Keith


Normanton, Tom
Williams, D.(Montgomery)


Onslow, Cranley
Wolfson, Mark


Page, Richard (SW Herts)
Younger, Rt Hon George


Patten, John (Oxford)



Percival, Sir Ian
Tellers for the Ayes:


Powell, Rt Hon J.E. (S Down)
Lord James Douglas-Hamilton and Mr. Robert Boscawen.


Prentice, Rt Hon Reg



Price, Sir David (Eastleigh)





NOES


Allaun, Frank
Cunliffe, Lawrence


Alton, David
Davidson, Arthur


Archer, Rt Hon Peter
Davis, T. (B'ham, Stechf'd)


Atkinson, N.(H'gey.)
Deakins, Eric


Beith, A. J.
Dempsey, James


Bennett, Andrew(St'kp't N)
Dewar, Donald


Boothroyd, Miss Betty
Dixon, Donald


Brocklebank-Fowler, C.
Dormand, Jack


Brown, Hugh D. (Provan)
Douglas, Dick


Buchan, Norman
Dubs, Alfred


Callaghan, Rt Hon J.
Duffy, A. E. P.


Callaghan, Jim (Midd't'n &amp; P)
Dunwoody, Hon Mrs G.


Campbell-Savours, Dale
Eadie, Alex


Clark, Dr David (S Shields)
Eastham, Ken


Cocks, Rt Hon M. (B'stol S)
Ellis, Tom (Wrexham)


Coleman, Donald
Ewing, Harry


Concannon, Rt Hon J. D.
Faulds, Andrew


Cook, Robin F.
Fitt, Gerard


Craigen, J. M.
Fletcher, Ted (Darlington)


Cryer, Bob
Foster, Derek






Foulkes, George
Price, C. (Lewisham W)


Graham, Ted
Race, Reg


Grant, George (Morpeth)
Radice, Giles


Grimond, Rt Hon J.
Richardson, Jo


Hamilton, James (Bothwell)
Roberts, Ernest (Hackney N)


Hamilton, W. W. (C'tral Fife)
Rooker, J. W.


Harrison, Rt Hon Walter
Roper, John


Haynes, Frank
Sandelson, Neville


Heffer, Eric S.
Sever, John


Holland, S. (L'b'th, Vauxh'll)
Sheldon, Rt Hon R.


Hooley, Frank
Silverman, Julius


Howells, Geraint
Skinner, Dennis


Huckfield, Les
Soley, Clive


Hughes, Robert (Aberdeen N)
Spearing, Nigel


John, Brynmor
Spriggs, Leslie


Johnston, Russell (Inverness)
Steel, Rt Hon David


Jones, Barry (East Flint)
Stewart, Rt Hon D. (W Isles)


Kilfedder, James A.
Stoddart, David


Lamond, James
Straw, Jack


Leighton, Ronald
Thorne, Stan (Preston South)


Lofthouse, Geoffrey
Tilley, John


Lyon, Alexander (York)
Tinn, James


McCartney, Hugh
Wainwright, E.(Dearne V)


McElhone, Frank
Wainwright, R.(Colne V)


Maclennan, Robert
Weetch, Ken

 Marshall, Dr Edmund (Goole)
Welsh, Michael


Martin, M(G'gow S'burn)
White, Frank R.


Mason, Rt Hon Roy
Wigley, Dafydd


Millan, Rt Hon Bruce
Wilson, Gordon (Dundee E)


Mitchell, Austin (Grimsby)
Winnick, David


Morris, Rt Hon C. (O'shaw)
Woolmer, Kenneth


Morris, Rt Hon J. (Aberavon)
Wrigglesworth, Ian


Morton, George
Young, David (Bolton E)


Newens, Stanley



Parry, Robert
Tellers for the Noes:

 Penhaligon, David
Mr. Allen McKay and


Prescott, John
Mr. Joseph Dean.

Clause 122

SPECIAL TAX ON BANKING DEPOSITS.

The Chief Secretary to the Treasury (Mr. Leon Brittan): On a point of order, Mr. Weatherill. I am wondering whether it might be convenient—I understand that it might—if the various amendments on clause 122 could be debated together.

The Chairman: Would it be convenient if, in addition to the amendments listed in my selection to be taken with amendment No. 43, we also discussed amendments Nos. 50, 41 and 52? Perhaps it might also be convenient for the Committee if we held a clause stand part debate so that we could discuss the whole clause. There can be separate Divisions if required.

Mr. Robert Sheldon: indicated assent.

Mr. John Browne: I beg to move, amendment No. 43, in page 103, line 7, leave out 'base'.

The Chairman: With this we may take the following amendments:
No. 44, page 103, line 7, after 'period', insert `1975–80'.
No. 57, in page 103, line 7, leave out '£10' and insert `£15'.
No. 60, in page 103, line 7, leave out '£10' and insert `£150'.
No. 50, in page 103, line 10, leave out '2½ per cent.' and insert '1 ½ per cent'.
No. 41, in page 103, line 19, at end insert
`and the total of corporation tax and tax chargeable under this section shall not exceed 52 per cent. of the current cost profits earned in the United Kingdom for 1980'.

No. 52, in page 103, line 22, after 'England', insert
'a Trustee Savings Bank as defined in the Trustee Savings Bank Act 1976'.

Mr. Browne: Before I begin, may I declare my interests as a consultant and as a director in the banking industry? The aim of my amendment is that, if, entirely against my beliefs, but if, the principle of retrospectivity proves to be acceptable to the Committee in general, I would ask that the bank levy should be applied to a whole profit cycle of the banks rather than merely to one of the two peak years in the conventional bank profit cycle. I refer, of course, to the special tax on bank deposits, now commonly known as the windfall profit tax on banks or the levy.
First, may I draw the attention of my right hon. and learned Friend to the question of the size of the bank profits in 1979 and 1980? Throughout my speech I shall refer particularly to the English clearing banks. Of course, their profits were large, certainly in absolute terms. The profits of the four of them amounted to about £1,500 million. They were also large in relation to the profits of some industrial companies and to most nationalised companies. But mere size alone does not justify a special tax. Only size, measured as a return, relative to assets or capital could possibly justify a special tax.
8.45 pm
One must realise that the banks' profits of £1½ billion were made on assets of £120 billion and worked by 250,000 people, and that 40 per cent. of these earnings were export earnings. These large profits were based upon large assets. Furthermore, they were made perfectly legally within the legal framework of the time and of today. As I say, 40 per cent. of these profits were earned abroad, so it is a retrospective tax on overseas earnings—albeit levied on the basis of United Kingdom deposits—as much as on earnings from interest rates in Britain.
The Treasury and the Government feel that these large profits are too high—that they are excessively high; indeed, windfall profits. Yet we have companies that bought stocks of tobacco before the Budget and made windfalls, but there is no mention of this. The bank profits are in the normal line of business. I do not see the windfall element in it. I see it as a business profit rather than a windfall profit. But the Government say that the profits are too high or are excessive. Against what criteria do the Government measure these profits? Is it in relation to competitors within the banking industry internationally, or within industry as a whole in Britain? Where is the Treasury evidence for "excessive" as opposed to "large" profits? Where are the Treasury definitions of "high", "excessive" and "windfall"?
My researches show the following, at least for the four major English clearing banks. They show, first, that the profits are distinctly cyclical in nature. Measured on a current cost return on equity basis, from the trough in 1975, when the return was 4·5 per cent., it reached a peak in 1979 of 8 per cent., and in 1980 it fell back to 6·5 per cent. The average throughout this period was a return of merely 2·7 per cent. Is that excessive, high or deserving of a windfall profits tax?

Mr. Tristan Garel-Jones: In describing the profits made, for example, by companies which purchased tobacco, or whatever it may have been, surely my hon.


Friend would recognise that those companies had taken a risk. They had risked their money and had made a judgment about the market. Therefore, any benefit accruing to them could fairly be described as a profit. Will my hon. Friend define what he regards as a profit and say why he believes that moneys that have accrued to the clearing banks as a result of high inflation and a high minimum lending rate are profits? Why does he define them as profits? Where is the risk involved or the business acumen?

Mr. Browne: My hon. Friend mentions risk. As I hope to show later—I hope that my hon. Friend will interrupt me again if I do not cover the point sufficiently—banking is a risk business, by its very nature. The great worry of many financial observers throughout the world at this time of mismatched petrodollar recycling is the inordinately imprudent risk that many bankers are taking. Banking is a high risk business and therefore, I believe, deserving of the retention of high profits.

Mr. Nick Budgen: If the banks have been having such a difficult period, as my hon. Friend seems to be saying, will he explain how the banks seem to have been able to make very substantial acquisitions abroad?

Mr. Browne: My hon. Friend is not right. I did not say that the banks were experiencing great difficulty. All that I have said up to now is that the banks' profits are distinctly cyclical. All I am questioning is whether they are high, excessive or windfall. As regards acquisitions abroad, in order to offer a competitive international service to British companies the banks need to have assets and operations abroad. Whilst they are, in fact, earning great profits on those assets abroad, I find nothing contradictory in what I have said. I was not trying to say that they have had a hard time.
As I was saying, is that the average return from 1975 to 1980 for the banks measured on a current cost return on equity basis was just 2·7 per cent. A comparative measure, although not completely comparative because it is slightly different and a more conservative measure, is to use the average return on trading assets for industrial and commercial companies. Over that same period 1975 to 1980, that return was 3·4 per cent. It was distinctly higher than the average return on equity for the banks. Measured against British industry and commerce, it is 2·7 per cent. as against 3·4 per cent. Furthermore, that 3·4 per cent. is a more conservative measure but it is the only one generally available. If we measure it against the United States banks—

Mr. Straw: Could the hon. Gentleman explain whether, by referring to a higher figure for industrial companies, he is saying that industrial companies have been more profitable than the banks?

Mr. Browne: Yes, that is absolutely right. That is exactly what I am saying, to the extent of an average of 3·4 per cent. over the period 1975 to 1980, as compared with the bank figure of 2·7 per cent. over the same period. I emphasise again that those two measures were not exactly similar because one cannot obtain the identical statistics. The one relating to companies is more conservative; if it were measured on the same basis as the banks, it would give a higher figure of return.
Let us compare, for example, Barclays Bank, which is a major international bank in the United Kingdom, with

probably the most equivalent bank to any of the English clearing banks, the United States Bank of America. The Bank of America is Californian-based and, therefore. has a large current account deposit base,; larger than any other deposit-taking bank in the United States. Indeed, it was the largest bank in the world. In the two peak periods 1979 and 1980, the return on capital for Barclays was less than the return on capital for the Bank of America for those two years.

Mr. Alan Clark: It seems that by concentrating on these figures my hon. Friend has rather lost sight of the essential principle that is involved. It is no business of Governments to make abstract moral subjective judgments as to what is or is not an excess profit.

Mr. Browne: I entirely agree with my hon. Friend on that. This is exactly what I am trying to get at. I cannot find where this abstract judgment on windfall, or excessive, or high profits has come from; I do not agree with it. But may I say again, I humbly submit that the profits of the English clearing banks are, first, cyclical. Secondly, they gave rates of return below the company average over the period 1975 to 1980 and less than that of at least one comparable American bank. Thirdly, the profits are actually falling. The tax that we are to levy is based on 1980 profits, which are 7 per cent. down on 1979, measured purely in monetary terms. If adjusted for inflation, they would be 30 per cent. below the 1979 profits. If this is so, how can my right hon. and learned Friend say that these profits are excessive?

Mr. Garel-Jones: Will my hon. Friend tell us when the Government have said that the profits are excessive? We are not saying that the profits are excessive. Those of us who support what the Government are saying are actually disputing that these are profits at all. They are windfalls—fortuitous events.

Mr. Browne: I am sorry that I cannot quote exactly which Ministers have said that they are excessive, but it has been commonly stated that they are windfall profits and I think that that was the implication behind the Chancellor's proposals.

Mr. Keith Wickenden: Will my hon. Friend refer my hon. Friend the Member for Watford (Mr. Garel-Jones) to the speech made by my right hon. and learned Friend the Chancellor of the Exchequer at the Chartered Accountants Hall on Tuesday 7 April 1981, in which he referred to the high level of windfall tax?

9 pm

Mr. Browne: I thank my hon. Friend for that helpful interjection.
Will my right hon. and learned Friend please specify how bank profits were measured when the Government and the Treasury made their judgment? I do not have the armoury of the Treasury and the Bank of England, and I find it very hard to see how these profits were measured, what they were related to and to whom they were related. Secondly, does my right hon. and learned Friend believe that the English clearing banks' profits for this period were excessive?
Taken at the near peak of the cycle, in 1979, the cost of the tax to the English clearing banks was £330 million, or 80 per cent. of their current cost profits for that year.


That is a staggering amount. Amendments 43 and 44 seek to spread this tax over the whole profit cycle rather than taking merely the second highest year in that profit cycle.
Capital is the raw material of the banking industry, and the free capital—that is, capital net of fixed assets and trade investments—is a well-acknowledged international measure. Banking, in essence, is a risk business; therefore, the strength of a capital base is crucial. The history books show pages of lists of banks that have collapsed. Security of bank capital is certainly of critical importance.
The massive load of petrodollar recycling has been shouldered largely by the commercial banks instead of by the development banks. The resulting mismatch of accepting massive short-term deposits and lending to high-risk, less-developed countries on a longer-term basis has increased the risk of the world's banks to a level which has made prudent men sincerely worried. They are worried about the relative levels of capital in banks in an inflationary age against these deposits and also about the quality of the deposits, which are very liquid and upon which the banks' lending is based.
For example, three or four years ago the average maturity of the whole of the Saudi Arabian assets of the Central Monetary Agency, which is the equivalent of their Central Bank, was less than one year. The deposit accepting banks were lending these funds on at seven, 12 and sometimes 15 years. This mismatch increases banking risk. Yet at this very time the Government have decided to erode the free capital of the United Kingdom clearing banks by 10 per cent.
The Chancellor has argued and, as an example, quoted that Barclays Bank free capital to deposit ratio was 4 per cent. and that it was well above that of the Bank of America in the United States, which had a free capital ratio of 2·4 per cent. I hope that my right hon. and learned Friend will understand why I question the Treasury's statistics. For, when those two ratios were measured by the same accounting method, the ratio of Barclays was not 4 per cent. but 2·8 per cent., and of the Bank of America 2·4 per cent.—a major change of emphasis. I wonder whether the free capital ratio of Barclays really had as much to spare in it as the Chancellor claimed.
This bank levy has a major effect on the lending capacity of the banks. Normally, banks lend on a rough basis of 15 to 20 times their capital base. An increase in the free capital of a bank of about £400 million should equal roughly £5 billion to £6 billion of potential lending.
I acknowledge that withdrawing that same amount—£400 million—of money from the banks in terms of a windfall profits tax does not reduce the banks' lending overnight by £6 billion, because the banks will make up that capital loss by borrowing in the short-term money markets. However, it does reduce the potential long-term lending ability of the banks. Again, not all banks will behave in the same way. It depends on the policies of the individual bank, not only its policy on how it should raise new capital by debt or convertible issue or by equity—which will change the capital base—but also upon its lending policy.
However, I believe that the erosion of the capital of the United Kingdom clearing banks in terms of potential long-term lending will effectively erode potential bank lending by roughly £3 billion. That is amazing when one considers

the fact that the commercial banks have done a fantastic job in propping up otherwise bankrupt and near-bankrupt British companies to such a degree that people would be more than usually worried if they knew the full tally.
We are all looking for a recovery in the economy in the future. When that recovery comes, as I believe it will, it will need equity funding and lending. However, the lending potential of the banks will have been decreased by the measure by approximately £3 billion.
Finally, from a political point of view, the banks on the high streets will start increasing bank charges to cover their lost profits. That will be very unpopular and expensive for British business and consumers alike. This inevitable result makes the tax appear slightly more amazing to me.
May I now consider the use of proceeds, in the national interest? The Government tax will take out £400 million from the banks. That was a potential £3 billion of lending and £3 billion of money which would have been lent skilfully to British industry, against commercial criteria. We are replacing it with £400 million given to the Government to finance more public expenditure which will be lent or granted against mere political criteria.
Therefore, the Government receive £400 million and withdraw £3 billion of commercial money from the economy. In short, the Government will use the £400 million to support the public sector employment cartels at a long-term cost to the private profit-earning sector of the ecomomy of approximately £3 billion in potential long-term lending.
I am sorry that the banks did not take more initiative during this limbo period, when there were hints of action against the banks. The Chancellor was fair to say that. Whether or not it was legitimate in terms of taxation is another question. I was sorry that the Government and the banks turned a deaf ear to my suggestion that they should each make a pool of capital available from their shareholders' funds—for example, 30 per cent. of their profits for 1980—purely for an injection into high-risk equity investments in this country. That would have given an enormous stimulation to encourage British industry, especially small businesses and new companies. That would have enabled us to accept the challenges and benefits of the technological revolution. However, that opportunity has passed. Now, the banks will have to pay the tax and lose all rather than accept the risks of seed equity investment.
I find it difficult to accept how my right hon. and learned Friend can justify this tax in detail. However, what is worse is that the tax, or levy, is retrospective. I believe that retrospective legislation is totally unacceptable unless it benefits the citizen.
It may be socially acceptable and, indeed, desirable to introduce retrospective legislation to give First World War widows a fair and just pension, but to impose retrospectively penal taxation on a citizen or a body of citizens in a corporation is unacceptable. In a civilised country it would be outrageous if a man in prison on a life sentence for murder, through retrospective legislation, had then to face the death sentence. The same applies when dealing with other people's property, such as the shareholders' accumulated funds in the clearing banks.
I believe that the Chancellor has similar views. Let me quote briefly from his speech on 12 July 1978 on the then


Finance Bill. It was a long speech and I hope that he will forgive me if the quotation is slightly out of context. He stated:
First, warning must have been given to the taxpayer of the intention to legislate in this way and the warning must have been precise in form." —[Official Report, 12 July 1978; Vol. 953, c. 1641.]
I entirely agree. Later my right hon. and learned Friend quoted Mr. Heathcoat Amory, the Chancellor in 1958, as a guide to retrospective tax:
In my opinion, one essential pre-requisite, if retrospective legislation is to be used, is that those concerned should have every reason to be aware of the taxation consequences of their specific actions and, therefore, have a chance of avoiding them if they wish".—[Official Report, 18 June 1958; Vol. 589, c. 1132.]
The banks were given only a vague hint that something was in the air and that they had made too much money. They had no means of adjusting to face that taxation, although every other individual and company can normally adjust to meet forthcoming taxation rates.
Furthermore, the Financial Secretary in a debate on the 1980 Finance Bill said that to introduce a discriminatory tax on profits legitimately earned in one sector of the economy required a very strong case to be made. In his judgment, that case had not been made in the instance of the banks that year. Neither, I submit, has such a case been made in 1981. This tax is discriminatory. It is levied only against the big banks with deposits of over £10 million. Building societies competing in the high streets for deposits are not affected. It is retrospective, and yet no clear and precise advance warning was given to the banks.
I am even more concerned that the Bill contains further restrospectivity. On page 186, in schedule 15, paragraph 3(5), there is a 42 days' retrospection on foreign exchange and on the next page there is room for further discrimination on inward foreign exchange controls.
In summary, the bank levy is discriminatory, retrospective and has yet to be justified. If, with the power of the Government and the support of other hon. Members, my right hon. and learned Friend insists on pursuing this tax, on a retrospective basis, I ask him please to consider and accept my amendment, which seeks to mitigate the application by basing the tax upon the profit cycle rather than merely the peak profits of a cyclical profit industry.

Mr. David Steel: The hon. Member for Winchester (Mr. Browne) has treated the Committee to a delightfully muddled speech. At times he touched on matters with which I agree. I remember in March 1980 arguing that the banks should create the kind of fund he advocated in order to provide risk equity for the private sector. But none of that has happened.
The hon. Gentleman was skating on thin ice when he argued that there was something wrong with the proposition that these windfall profits should be taxed. The point that he has overlooked, and which one of his hon. Friends was trying to draw to his attention, was that these profits were occasioned not by the efforts of the eleven directors of the banks but by the policies of Her Majesty's Government.
I remember in the spring of last year, when some of the banks were reporting their profits before the Budget, that various press reports suggested that the profits were an embarrassment to some of the banks and were paper profits only. I suggested in response that a tax would subdue those feelings of self-consciousness and return wealth to the community whence it came. I am therefore on record as

having advocated the principle of recognising that these profits arose simply and only from the fiscal policy of the Government of the day and were therefore a proper subject to come within the Chancellor's purview.

Mr. John Browne: I have never admitted that these were windfall profits. I said that they were large, not windfall. They were based on a relative rate of return—we are dealing here with a large animal.
The hon. Gentleman discussed the origin of the profits. I do not wish to be rude and say that he is guilty of an error of judgment, but he should realise that 40 per cent. of the profits came from abroad and had nothing to do with the interest rate policies in the domestic economy. The profits were therefore not entirely due to the British interest rate structure.

Mr. Steel: I shall not get into a detailed argument about how the profits arose. I am not making a moral judgment. I am saying that the banks could not help making those profits. The profits simply arose from the conditions that prevailed at the time. I do not condemn them or say that they were excessive—the word "excessive" implies a moral judgment. They were windfall profits, and as such they were ripe for taxation.
The hon. Member for Winchester referred to retrospection. However, his amendment seeks to make the tax even more retrospective by going back to 1975 or 1976. So in that respect his argument was fairly muddled.
As this is a general debate, I wish to examine the general effect of the clause with its proposition to impose a tax of 2½ per cent. on the banks' current account deposits calculated over the last three months of 1980—three to six months after the event. The exemption of the first £10 million of such deposits means that 90 per cent. of the revenue yield of about £400 million will be borne by the London and Scottish clearing banks.
Approximately £330 million will be borne by the big four banks. That amounts to nearly 80 per cent. of their real profits from last year after tax. This exceeds their domestic profits alone, but the effect will be cushioned by their enormous international profits.
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For that reason, banks that do not have large international profits, such as the Co-operative Bank and the National Giro, will be particularly badly hit. That is why my colleagues and I will support the amendment that is to be moved by our Social Democratic friends—[Interruption.] I do not propose to trespass on the wish of the hon. Member for Thornaby (Mr. Wrigglesworth) to deal with that amendment and, therefore, I shall deal with another point. For obvious reasons, the proposed tax is retrospective.

Mr. Michael Shersby: Before the right hon. Gentleman moves off that interesting topic—I do not refer to the right hon. Gentleman's friends below the Gangway—will he explain his point about National Giro and the Co-operative Bank? Does the right hon. Gentleman distinguish between them and the joint stock banks? If so, why?

Mr. Steel: I was pointing out that they do not benefit from the cushioning effects of the external profits of the major banks. I deliberately said that I would not trespass on the amendment that is shortly to be discussed.

Mr. Tim Eggar: I understand that the Government's case for imposing a tax is that a windfall profit has accrued to the banks on their domestic profits. If the right hon. Gentleman is arguing that the tax is too high, why does he support the tax on the clearers?

Mr. Steel: It is intended that the tax should be levied not on the domestic profits, but on the overall profits. That is what the Government are saying.

Mr. Eggar: It is not.

Mr. Steel: If the Chief Secretary wishes to intervene, I shall give way to him. The tax is retrospective in concept because the Government's assessment of the last two years' profits has inspired it, even if its base is technically to operate on the last three-month figure.
We should pause and consider the occasions when the House of Commons has contemplated retrospective legislation. The two most recent examples are the War Damage Act 1965 concerning the Burmah Oil Co. and the Finance Bill 1978, when the Labour Government attempted to make illegal retrospectively certain dealings in commodity futures that were pure tax evasions. For different reasons, but on both occasions, my party moved amendments of some substance and received considerable support from hon. Members. It is important to look at the record because an issue of principle runs through all three cases.
In 1965, the House of Lords, in its judicial capacity, determined that the Burmah Oil Co. had a claim for compensation against the Crown for the destruction of its assets in Burma during the Second World War. While that litigation was in progress, the Labour Government enacted the War Damage Act 1965, which ensured that the company had no claim. That occurred a few weeks before I became a Member of the House, but my colleague, Lord Avebury—then Eric Lubbock—tabled an amendment that received considerable support from hon. Members, including the right hon. and learned Member for Surrey, East (Sir G. Howe) who is now Chancellor of the Exchequer. He voted in favour of the amendment. Nevertheless, it was defeated and the Bill became law.
The next occasion was the Labour Government's Finance Bill which dealt with an especially invidious form of tax evasion based on commodity futures dealing. The then Chief Secretary claimed that it was illegal, but he still found it necessary to introduce a clause in the Finance Bill 1978 to ensure that it was illegal right back to April 1976. The aim of retrospective legislation is not simply to make one scheme retrospectively illegal but to set a precedent. That is why this case is so important because it sets a precedent and frightens those who might seek other marginal schemes in future.
In November 1977, the Government, in answer to a parliamentary question, gave clear warning that they would introduce such legislation. In Committee on the Finance Bill, despite the fact that the Lib-Lab pact was operating, we made it clear that we could not accept the principle of restrospectivity involved. A debate took place on Report, whose effect on the Liberal amendment was to remove the retrospective nature of the Bill's provisions.
At that time, the Conservative Party was in Opposition. It accepted the validity of the Government's 1977 warning. It sought to amend the provisions—accepting that tax evasion loopholes should be closed—and to apply it from the time that the warning was given. In Committee,

the present Minister of State, Treasury laid down what he called clear guidelines to be followed in retrospective legislation. They were further endorsed on Report by the present Chancellor.
The present Minister of State, Treasury said:
apparently this type of measure is to be regarded as a regular weapon in a Labour Administration's fiscal armoury, because, as I said, this is clearly the Chancellor's underlying motive. The signal has been hoisted to all those who are rash enough or bold enough to embark on schemes of tax avoidance that they may find that the arrangements which they have made, perfectly legitimately and within the law, are going to attract quite different legal consequences by a legislative measure introduced one, two, three, four, who knows how many years after the event. Speaking for myself, I believe that this is entirely destructive of civilised life in this country.
When he said that, there were murmurings all round and it was thought that he was exaggerating. He responded to the interruptions and said:
Why I say that this is destructive of civilised life is because in an ordered society we are all surely entitled to proceed in the certitude that the law is as it is declared at the present moment of time and that it is not going to be altered, capriciously and retrospectively, to attach to our actions a consequence which we could not have foreseen."—[Official Report, Standing Committee A, 6 June 1978; c. 717–8.]
I could not produce a better definition of a firm and fair guideline. It was endorsed by the present Chancellor on Report, and a sentence from his speech has already been quoted. That was why the Conservative Party accepted the warning as clear and precise. It was given and that was what the Chancellor said had to happen.
If the guidelines of the Conservative Party in Opposition were to be applied to legislation concerning tax evasion schemes, they should apply even more to the ordinary burden of taxation when no immorality on the part of the taxpayer is suggested. It should be emphasised that the Liberal Party has never regarded a warning as sufficient. The present windfall profits tax falls foul of the Conservative Party's guidelines. The nearest one came to a warning was in the Chancellor's Budget Statement in March 1980 when he said:
There could, of course, be a case in principle for a special tax related to the windfall element in these profits, and I shall be considering that further. However, it has not yet been established that such a tax is either practical or entirely desirable in today's conditions."—[Official Report, 26 March 1980; Vol. 980, c. 1466.]
That cannot constitute a warning of the kind that two Treasury Ministers have outlined to be necessary. Any value that it had as a warning must have been lost when the Financial Secretary, in the Finance Bill debates, defended bank profits and said that a strong case would have to be made for a tax on profits legitimately earned.
We should think carefully before allowing what Conservative Party spokesmen in Opposition said was to be a vehicle for a future Labour Administration to be used as a vehicle by a Conservative Administration. Nothing demeans politics more than when political parties and politicians move from Opposition to Government and trample over everything that they said in Opposition.

Mr. Straw: The leader of the Liberal Party begged the forgiveness of the hon. Member for Winchester (Mr. Browne) and said that his speech was a muddle. I beg the right hon. Gentleman's forgiveness. The speech by the hon. Member for Winchester was a paradigm of clarity compared with the muddle from the Liberal Party.
The Chief Secretary can speak for himself, but I understand that the provision is about taxing banks'


domestic profits—not overseas profits—as they have arisen through high interest rates in the last two years. It is not clear whether the Liberal Party intends to support the clause.

Mr. Ian Wrigglesworth: Does the hon. Member for Blackburn (Mr. Straw) accept that a bank has only one pool of profits from which the tax will be drawn?

Mr. Straw: I accept that, but the argument is whether there is any justification for the tax. The justification is that the banks made windfall profits on their domestic banking business primarily from current account in Britain in the last two years. Of course we want the tax to be fair between large and small banks. We shall listen carefully to the arguments on behalf of the smaller banks, such as the TSB, the Co-operative Bank and Giro. We shall not judge until we have listened to all the arguments.

Mr. Steel: For some banks, the total take by the Chancellor will exceed their domestic profits, so how can the hon. Gentleman argue that the tax applies only to domestic profits?

Mr. Straw: I do not accept that. No figures that I have seen suggest that to be so. If it is so, it is a case for relaxation for the small banks. We shall examine that carefully.
Three key issues are involved in the clause. The first is whether the banks have made windfall profits. The second is, if they have, whether the profits should be taxed. The third is, if they are taxed, whether industry and the economy will suffer as the banks claim?
Many figures were given by the hon. Member for Winchester about the cyclical nature of banks' profits. Some of his figures suggested that the British banks were doing less well than foreign banks. I do not know where he got his figures from. I got my figures from the same source as the Chancellor and the Chief Secretary—The Economist's survey of international banking, published earlier this year. It shows clearly that not only were the four major British banks—Barclays, National Westminster, Lloyds and the Midland—the most profitable banks in the world in 1979, when they had the part benefit of the windfall, but the most profitable banks on the basis of the ratio of net income to assets in 1977, before the windfall element arrived in their profits.
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On this table, which I shall be happy to show the hon. Member for Winchester, the Bank of America is about nine down. Its ratio of net income to assets is 0·49 per cent., compared with 0·70 per cent. for Barclays—at the top—in 1977. The figures for 1979 are 0·58 per cent. for the Bank of America and 1·21 per cent. for Barclays—almost twice the income.

Viscount Cranborne: Is the hon. Gentleman confident that the basis of computation of profits of American banks and British clearing banks are identical? If so, how does he explain the difference in the profit element of the financial statements made by Barclays, when it had to issue a prospectus recently in the United States?

Mr. Straw: International comparisons are always difficult. We know that. However, The Economist is a serious journal, which has much expertise available to it. In drawing up its survey it took a lot of trouble to make the comparisons as true as possible. It is incontrovertible,

not only in this survey but in other surveys, that the four British clearing banks are among the most profitable in the world, and have been so for a considerable time. They are so profitable not because they are the best banks in the world and the most competitive but because they enjoy the most effective cartel in the world for their domestic business. In the words of a leader in the Financial Times—no less—they enjoy "monopoly income" from their domestic business. Those words were published soon after the Chancellor made his Budget Statement announcing the introduction of this tax.
The banks' profits were substantial, even in 1977. In that year they made total profits of £887 million, and that was in a period when the minimum lending rate was about 7 per cent. By 1979 their profits had risen to £1,600 million, and in that year the minimum lending rate rose to 14 per cent. in June and to 17 per cent. in November. Last year, 1980, the banks' reported profits were £1,500 million, and during that period the minimum lending rate stayed at 17 per cent. Until June and then dropped to 16 per cent. in October and 14 per cent. in November. The £100 million drop in bank profits led the hon. Member for Winchester to claim that there had been a significant drop in the profitability of banks in those two years.
What needs to be taken into account in assessing the size of banks' profits is that in 1980 the banks introduced into their accounts a provision for bad debts—a provision that was four times the size of the provision for bad debts in 1979. In 1979 the provision for bad debts was £63 million and in 1980 it was £271 million. Part of that might be justified on account of the substantial increase in bankruptcies, but there is a strong suspicion, not only on the Labour Benches but in the financial press, that part of the reason for the substantial fourfold increase in provision for bad debts was to massage their profits downwards and show that profits as between those two years had reduced rather than increased.
It is also incontrovertible that a major part of the additional profits of banks have come from the chance of higher interest rates introduced by the Government. It is also incontrovertible that the cost of those higher interest rates and, therefore, the higher profits of the banks have, on the whole, been paid for by manufacturing industry in this country.
Each 1 per cent. rise in MLR costs industry about £350 million in a full year. It is no coincidence that the cost to industry of the rise in interest rates in 1979 worked out at about £700 million and that the rise in bank profits between 1977 and 1979 was slightly more than that. In 1980 the cost of the rise in interest rates was again about £700 million. There is no question but that there is a close relationship between the cost to industry of the additional and high interest rates that were introduced not for reasons that we accept but for reasons of Government policy and the benefits received by the banks. The banks do not seriously dispute that they have benefited in that gratuitious manner.
In a speech at the Chartered Accountants' Hall on 7 April 1981, the Chancellor said:
As one of the clearing bank chairmen has noted, this recession is different from those in the past when bankers generally suffered with industry. On this occasion high interest rates have ensured that the tribulations of industry were not shared by the banks.
The banks know in their hearts that in this recession, because of the way in which the Government handled their


interest rates policy in stark contrast to previous recessions, they have benefited in a wholly gratuitous manner.
If it is established that they are windfall profits, the second question is whether they should be taxed. In the Opposition's judgment they should be taxed, and it would be fair to tax them. We have pressed for taxation not only of the profits that the banks are announcing this year but of the profits that they announced last year. Had that been done there would have been at least another £400 million of revenue available to the Government. I hope that when Treasury Ministers start totting up the total effect of the amendments that we have moved to cut back the tax increases that the Government have imposed they will bear in mind that the rules of the House prevent the Opposition from proposing increases in taxation—otherwise, last year we would have proposed a substantial tax on the windfall profits for 1979 in the way that the Government are proposing them for this year.

Mr. Peter Tapsell: Am I right in thinking that the hon. Gentleman has come to the crux of the matter? Is he saying that the Labour Party, faced with any sector of industry or business that is making large profits, will press for an excess profits tax on it and, if necessary, support a retrospective excess profits tax? Is that not a serious warning for the whole country, not only in respect of the present proposals, so inadvisedly being put forward by the Government, but for the future consequences if we should ever again have the misfortune to have a Labour Government?

Mr. Straw: I note the hon. Gentleman's remarks. [HON. MEMBERS: "Answer the question."] I am about to do so. If the Government had accepted our advice about taxing banks there would have been no need for retrospection. They could have introduced a tax that was prospective in its force. We are not accepting responsibility for the fact that the Government, by their own actions, have had to make the tax retrospective. If the Government had accepted our advice about the way to run the economy there would have been no need for the tax.
It was our belief, and it remains so, that the imposition of high interest rates was perverse in the extreme. It hit manufacturing industry and failed, as we all now know, even in its ostensible purpose of controlling the money supply. While interest rates shot up to 17 per cent. the money supply shot up to more than 22 per cent.—three times the target set by the Chancellor.
One prime reason for taxing these windfall profits, apart from the size of the profits, is that the imposition of high interest rates has meant a substantial and enforced transfer of money and resources from manufacturing industry to the banks and, as it happens, from the North to the South. Of course, Conservative Members dispute that. There has been a general drop in demand and deflation in the economy. If one asks why one manufacturing company after another has reported low profits or no profits the answer in every instance is the high interest charges that they have had to bear.

Mr. John Browne: That is an excuse.

Mr. Straw: I suggest that the hon. Gentleman says that to the chairman of ICI. The hon. Gentleman should read

his report. He should say that to the chairmen of textile companies who have seen their companies go out of business because of the imposition of high interest rates. High interest charges have been far more significant as a factor in industrial costs than local authority rates, about which the Government are making so much fuss.

Mr. Browne: rose—

Mr. Straw: No, I shall continue.

Mr. Ted Graham: You have stung them, Jack.

Mr. Straw: One reason for introducing the tax is to enable the Government to redress the effect of their policy, which has harmed industry so much, and to use the benefits of the policy to assist industry. In his Budget Statement the Chancellor of the Exchequer, in announcing the imposition of the tax, said:
this revenue will make it possible for me to give some help to the rest of industry this year which I otherwise could not afford."—[Official Report, 10 March 1981; Vol. 1,000, c. 772.]
When the Chief Secretary to the Treasury replies I hope that he will tell us how and where that help is to be applied, how the £400 million is to be used to help industry, and whether it will be used to reintroduce the regional assistance that the North, the North-West and the Midlands lost in July 1979, when unemployment in those regions was running at between 6 per cent. and 8 per cent. Those regions lost that assistance and they will continue to lose as unemployment runs at double those rates.
Thirdly, having established that it is right to impose the tax in principle, will industry suffer if it is imposed? That is the contention of the chairmen of the banks. The chairman of Lloyds Bank, Sir Jeremy Morse, attacked the proposed windfall tax in a special insert in his annual report. On 19 March he said:
it will deplete our resources just when industry needs most our support.
That sentiment was reflected in a banking information service notice that was sent out to all hon. Members. Under the heading "The Damaging Effects on Industry and the Banks" it stated:
The levy is damaging most of all because it strikes at the very basis of the banks' ability to support industry through the recession.
The banks are saying that apart from the unfairness of the tax—we do not accept that premise—it will undermine their ability to assist industry out of the recession if it is introduced now. As part of that case the hon. Member for Winchester said that the banks have done a fantastic job in supporting industry.
In our view, and on the basis of the evidence in the Wilson report, the banks' record in assisting industry has been not fantastic but dismal.

Mr. John Browne: Rubbish.

Mr. Straw: As the banks have grown richer—

Mr. Tapsell: What is your evidence?

Mr. Straw: I am coming to that. As the banks have grown richer they have come to serve industry less and less effectively. The proof of that is in the way in which industry has voted with its feet and has transferred its accounts from British clearing banks to foreign clearing banks.
We have heard a great deal about the failure of private car companies over the past 10 years. We have been told that the actions of their managements and trade unions


have led to phenomenal import penetration by foreign car companies. The import penetration of those companies 10 years ago was about 15 per cent. and it is now over 55 per cent. We have heard repeatedly from Conservative Members and from their colleagues and friends in the City that that is a commentary on the effectiveness of management and trade unions in the British car industry. We have heard less about the equally dramatic import penetration in British banking.
From literally nowhere 10 years ago, foreign banks now account for 31 per cent. of the deposits of British manufacturing industry. That is the extent of the import penetration which British banks have suffered because they have failed to provide the right product at the right price to British industry.

Mr. Peter Hordern: Is not the hon. Gentleman aware that one of the reasons why so many American banks are now operating here is that they service American companies which manufacture in Britain? If he looks at the figures, he will see that about 30 per cent. of manufacturing service industries are composed of international companies, many of them American.

Mr. Straw: I am aware of the figures. However, the figures on page 69 of the Wilson report show that foreign banks now account for 31 per cent. of the deposits of United Kingdom companies. The hon. Gentleman will be able to check those figures if he gets the Wilson report from the Library.

Mr. Budgen: Does not the hon. Gentleman agree that the general thrust of the Wilson report is that because the tax system has been distorted in favour of various forms of investment, which the politicians have decided ought to be given preferential treatment, the effect has been to deny a liberal system of investment to those who want funds?

Mr. Straw: I do not accept that. There are many reasons why British banks and British industry have done less well than foreign companies and foreign banks. Unquestionably, one of the reasons is that British banks tend to be far more cautious and conservative in their lending policy. There is overwhelming evidence of that in the Wilson report as well as in The Sunday Times series on the British banking system.
On the same asset base, German banks lend German companies twice the amount that British banks lend; French banks lend three times the amount; and Japanese banks seven times the amount. The foreign banks have achieved that import penetration not because they are more profitable than British banks—as the Economist report shows, on the whole they are less profitable—but because they have been able to offer a better product that is more attuned to the needs of the companies concerned. In addition, they are more willing to lend on prospective cash flow projections than on the narrow asset bases upon which the British banks so often rely.

Mr. John Browne: There is a historic reason for the difference between the long-term lending of British banks and the long-term lending of German banks. Britain had a capital market that was highly developed. It had a good equity market and a good long-term debt market. Therefore, the banks simply had to fulfil their rightful role,

which was short-term lending for working capital. That was not true in France or Germany, where the banks had to take up the slack. That is the reason behind that historic precedent.

Mr. Straw: The hon. Gentleman is right in saying that there are historic reasons for the difference. However, for historic and other reasons, British banks have been far less supportive of British industry than German banks have been of German industry and French banks of French industry
If we are concerned about regenerating British industry, as I hope we all are, we should try to ensure a much closer relationship between British banks and British industry and far more support from British banks than they have been willing to give in the past.
Even after the payment of this £400 million tax on a one-off basis, the British banks will still be highly profitable and will easily be able to meet the needs of industry if they are disposed so to do. However, the chairman of Lloyds has said:
it will deplete our resources just when industry needs most, our support
If the banks retaliate against the imposition of this tax by failing to assist British companies, the case for making them properly accountable to the nation and for publicly regulating their effective monopoly position will become even greater. This tax will not only produce a windfall for the Government; it has produced a windfall for the Labour Party. The hon. Gentleman is exactly right. We have a windfall of wonderful quotations which we shall certainly bear in mind when we decide upon the future policy for the banking sector. After all, it was the Sunday Express which said:
If it is now legitimate to cream off bank profits in a good year,
the case against strict Government control of the banks, the ease against bank nationalisation even is diminished".
Quite so. A letter to the Financial Times said:
So a Tory Government has had the incredible temerity to introduce a tax on bank profits which amounts to a confiscation of a shareholder's asset, without compensation".
That may be true, and Conservative Members should think very carefully about the precedent which the Government have set. They should also think on the fact that if the Government had accepted our advice on the running of the economy generally they would not be in this sorry mess. Even if they had accepted our advice on the imposition of this tax last year, they would not be in all the difficulties that they are in today over this retrospective element. We support this tax. We look forward with great interest to what the Chief Secretary has to say.

Mr. Brittan: I thought it might be convenient if at this stage I covered some of the main points of criticism relating to the bank tax generally and indicated the Government's general position, while, perhaps, I might at a later stage in the debate, deal with some of the points arising from some of the amendments. It seemed to me that to fail to give a general account at this stage would be less than fair to the Committee in considering the amendments.
Can I first of all say a word about the spirit in which this provision is to be read in this Finance Bill? I want to make it quite clear at the outset that that spirit is very different from that just reflected by the hon. Gentleman the Member for Blackburn (Mr. Straw). I find it quite impossible to share his enthusiasm and zeal for this tax and I am not going to pretend that I do. The Government as a whole gave the matter a great deal of thought and it was


only with a considerable degree of reluctance that we concluded that the financial circumstances this year and, in particular, the fiscal requirements necessary to achieve the public sector borrowing requirement that we judged necessary for the maintenance of our anti-inflationary policy meant that the introduction of a tax of this kind was unavoidable. Let me remind the Committee that the tax is a single tax on a single occasion and is not put forward as a general introduction to the system.
I start by explaining the position last year. Reference has already been made to it by a number of speakers. Last year Ministers accepted—and we have had some of the quotations—that there could be a case in principle for special taxation of banks in certain circumstances on the grounds that high interest rates for which the banks were not themselves responsible enabled them to make particularly high profits. I will not use the word "excess" profits because that has a derogatory connotation and I do not accept for one moment the strictures of the British banks that fell from the lips of the hon. Member for Blackburn. I am not in any way criticising the banks for making profits of that kind on that basis in circumstances in which they were enabled to do so, but what Ministers last year said was that the existence of those high interest rates did, as a matter of fact, enable banks to make profits which were of an endowment or windfall character in the sense that they had not done anything which led to those profits.
That is not a criticism of them. It is a fact. But the Government felt last year that to introduce a discriminatory tax of this kind on banks was something which required a very strong case to be made, and they were not persuaded last year that this was so.
I think that different considerations apply this year. First, interest rates have continued at an exceptionally high level throughout 1980. The average base rate in 1980 of 16·3 per cent. was two and a half percentage points higher than that in 1979, when it was 13·7 per cent.

Mr. Wickenden: Will my right hon. and learned Friend give way?

Mr. Brittan: Perhaps I could develop this matter. My hon. Friend will remember that I said that at a later stage of the debate I would be dealing with points arising from it. I think that it is convenient at this stage to set out the Government's basic position on these matters.
The banks have continued to benefit from exceptionally high interest rates for an unprecedented period and for much longer than could have been expected in the first quarter of 1980, when the Chancellor was putting together his 1980 Budget. The effect of these high interest rates has been to increase the endowment element in bank profits. The endowment factor arises because banks can attract and hold deposits from the public at a cost, after allowing for services provided, substantially less than the yield at which they can invest the funds when interest rates are high. That windfall arises because the level of interest rates is the result of economic circumstances or Government policy, and not of any particular effort or action by the banks.
It is generally thought that it now costs the clearing banks about 9 per cent. to provide current accounts with the normal associated facilities. Over the past two years,

they have been able to invest funds deposited on current account in advances or other ways at much higher rates of interest.
Given the present levels of current account balances, every one percentage point rise in the general interest rate level increases the potential return from investing current account funds, on which this tax is to be levied, by about £170 million for the banks as a whole. The special tax has the effect of securing the benefit of two and a half percentage points of these higher interest rates for the Exchequer.
Secondly, as the results of the big four clearing banks indicate, banks have generally enjoyed, overall, another successful year, with their profits not being far different from those achieved in 1979. As has been mentioned, however, there has been—I am trying to present a balanced picture—a switch in emphasis, with the overseas profits generally moving ahead and domestic profits declining. The reasons for that are twofold. First, there is the provision for bad debts, to which the hon. Member for Blackburn referred. But there have also been increased staff costs, arising in part from pay increases—an average increase of 30 per cent. in 1980 over 1979 levels. The net result, however, has been good. Three of the four banks have been able to increase their dividends by 20 per cent.
Thirdly, the banks' experience with profits contrasts sharply with the reduced profits of industrial companies.
Fourthly, as the sharp increase in indirect taxation and the failure to index personal allowances clearly show, the Government have needed substantial additional revenue in 1981–82 to contain the public sector borrowing requirement, and, above all, to set a financial.framework—as so many of us have said from this Dispatch Box—in which it would be possible for interest rates to come down and for industry to begin the advance from the trough of the recession.
In a very broad sense, therefore, this tax can be seen as a measure to recycle back to industry some part of the substantial bank profits which have been provided by industry through its payment of high interest rates. Reference was made by the hon. Gentleman to the retiring chairman of Barclays. I would like to quote at only slightly greater length what Sir Anthony Tuke said:
In the past … where a country has suffered a major recession its bankers have suffered also but this recession is different, with high interest rates ensuring that the tribulations of industry are not shared by the banks. Indeed, it would not be altogether unreasonable for our borrowing customers to go further and observe that some of their profits are being absorbed by high interest rates which find their way into the profit and loss accounts of the banks; but these high interest rates are not of our making as they are part of the Government's policy".
Those were not the words of a politician. They were the words of a chairman of one of our major clearing banks.
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I accept that even if that general case is made out, and even if the basic reasons why the Government have felt it necessary to put these proposals before the Committee are respected if not shared, nonetheless my hon. Friends and others in the Committee, although not apparently the official Opposition, have grave reservations on grounds of principle about certain features of this tax. I want now to deal with these.
The suggestion has been made that the tax is reprehensible on grounds of its retrospective character, and quotations to that effect were prayed in aid. I dealt with this in part in my speech on Second Reading, but, I


fear, not altogether clearly. What I sought to say then was this. The reasons for objecting at retrospective legislation are the consequences that such legislation can have, often has, indeed perhaps usually has, in relation to the conduct of affairs—

Mr. Budgen: Will my right hon. and learned Friend give way?

Mr. Brittan: In one moment, but I want to develop this argument before giving way to my hon. Friend because I gave way to him perhaps prematurely on the last occasion we debated these matters. The objectionable features of retrospective legislation are the consequences that it has on expectations; the consequence it has on the way people behave; the harmful effect in leading actions of one kind to have consequences of another kind which would have been avoided if the people taking those actions had realised what the consequences of those actions were going to be when they took them. The consequences have changed as a result of the retrospective legislation. The rules of the game are altered but the objection is not just that the rules of the game are altered but that they are altered in a way that harms the individuals who had a right to expect that they would not be harmed.
Therefore, considering whether this principle applies here and in considering whether the disagreeable and objectionable consequences of retrospection apply in this case, it is not enough, I suggest to the Committee, to say that the tax is introduced now, it applies in relation to a date last autumn, and therefore it is objectionable. One has to probe a little deeper and ask what the circumstances in which the tax came to be imposed were and what are the consequences for those on whom it is imposed. Above all, it is necessary to ask: if they had known that this tax was to be imposed, would they have behaved differently? That is the principal objection on the ground of retrospection.

Mr. Budgen: For the second time, may I ask my right hon. and learned Friend to define for the Committee what is retrospective legislation?

Mr. Brittan: What I have tried to do is to explain that it is not a question that is susceptible to a simplistic definition of the kind my hon. Friend seeks.

Mr. Budgen: Will my right hon. and learned Friendgive way?

Mr. Brittan: My hon. Friend must bear with me. I shall not agree to a definition which does less than justice to real problems in law. It is perfectly possible to say that retrospective legislation is legislation which is introduced and which bites adversely on an individual or company in respect of something that that individual or company has done before its introduction.
That is an off-the-cuff definition which may or may not satisfy my hon. Friend. It may do well for the dictionary, but it does not answer the question whether it is always objectionable. The essential reason why retrospective legislation is rightly regarded with abhorrence and as something to be avoided is that it leads people to order their affairs in a way which they would have been able to avoid and which they reasonably might be expected to avoid if they had known that the legislation would have the consequences which it turns out to have.

Mr. Straw: Have we established that the right hon. and learned Gentleman accepts that the legislation is retrospective but that he is saying that in his judgment that

does not matter because people could not have changed their actions anyway? He is saying that it is retrospective, is he not?

Mr. Brittan: I am not saying that. I am saying that if my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) wants a dictionary definition of "retrospection" I have given him one. In the context of consideration of what is objectionable and what is not objectionable it does not suffice merely to apply that definition without looking at the consequences and without looking at whether it has harmed and is likely to harm individuals.

Mr. Tim Renton (Mid-Sussex): Might I suggest to my right hon. and learned Friend that there are two instances in which it can be argued that this retrospective legislation has specifically harmed individuals? The small shareholder who bought shares in a clearing bank at the end of last summer on the basis of the high profit made by one clearing bank in the 1979 financial year now finds that a retrospective tax is being introduced because of the profits made in that year and therefore he bought his shares on a false premise.
Secondly, I ask my right hon. and learned Friend to consider the future effect of this retrospective legislation. The Minister of State, Treasury, the hon. and learned Member for Dover and Deal (Mr. Rees) served or the Finance Bill Committee in 1978, as I did, so we feel rather strongly about this question. In future years, when clearing banks make high profits because of high interest rates—it will happen again—they will be tempted to put up their charges substantially because they will believe, after this example, that there is a strong possibility of the profits being taxed away from them. Those are two examples of the way in which retrospective legislation is damaging.

Mr. Brittan: The second example is not one of retrospection; it is an illustration of what people may do in the future. It may be a harmful consequence, but it does not concern the issue of retrospection. My hon. Friend referred to the purchase of shares by shareholders. That is not an example of retrospection either, because any shareholder buying in any company cannot expect a tax regime to continue for a specific period. The example of petroleum duties is a clear illustration that that is so.
I should like to deal with the facts about this tax because I have more to say about retrospection. I hope that if am allowed to do so my hon. Friends will again see that the question of retrospection is not as simple as is made out by my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen). I do not seek to put the tax in one definition or another; I merely seek to make it clear. In his 1980 Budget Statement the Chancellor of the Exchequer said that the Government were considering a special banking tax. Numerous statements have been made to that effect since then. The circumstances that might lead to the introduction of such a tax were made clear.
However, it is also relevant, particularly when one is comparing the situation with the 1978 type of discussion, that the tax applies only to concerns that were carrying on banking business on Budget day. We are not talking about raking up some transactions from years ago and penalising them.
The most important point of all, which relates to the fundamental analysis that I made of the essential mischief of retrospection rather than just whether it fell within a


narrow category, is that it cannot seriously be argued that the banks would not have earned their endowment profits if they had known that they would be taxed. Various profits arose as part of their normal business activities. They were carrying on normally. The profits arose out of the extra earnings that could be derived from the investment of current accounts, which were able to earn a higher return than would have been possible if there had not been high interest rates.

Mr. David Steel: Surely the right hon. and learned Gentleman is not seriously arguing that the banks would not have made a different judgment if they had known that this level of tax would apply in the last quarter of 1980. Surely many of the banks would have decided to accelerate improvement investment programmes on their buildings—for example, the installation of cash dispensing machines. Any normal prudent business man would have taken action.

Mr. Brittan: The right hon. Gentleman is misconceived. That is not what I said. [HoN. MEMBERS: "Mistaken."] That is right. I should have said mistaken. I am misconceived and the right hon. Gentleman is mistaken.
The right hon. Gentleman is wrong, because I did not say what he implied I said. I said that it cannot seriously be argued that the banks would not have earned their endowment profits if they had known that they would be taxed. The point about the tax is—

Mr. Dick Douglas: rose—

Mr. Brittan: I shall not give way.
The point is that the tax is a percentage of current account non-interest earning accounts. Therefore, taking the action that the right hon. Gentleman suggested would not be relevant in its impact on the matter.

Mr. Douglas: rose—

Mr. Brittan: I wish to carry on a little further, as I know that a number of my hon. Friends and other hon. Members wish to speak on specific amendments. I should like to confine my remarks on general points to a reasonable compass.
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The new tax is a tax for the current year, applicable to current businesses. The measure of liability will be by reference to deposits held in the last quarter of 1980, which is significant. Only in that respect is it a retrospective tax. That is, however, inescapable with a tax of that kind. The reason is obvious. If the tax were based on deposits at some future date it could easily be avoided by paying nominal rates of interest on the deposits at the crucial times, or even arranging for some of them to be transferred. Given that the tax is being imposed essentially because of the level of banking profits in the past two years, it is entirely appropriate to use a base period in 1980.
The real point of significance in the argument is that if the liability were based on current deposits, leaving aside action taken to prevent avoidance, its amount and distribution would have been similar to what it will be using the last quarter of 1980 as the base period. Indeed,

to the extent that there has been further growth in deposits meanwhile, a current base would mean a higher degree of liability.
For those reasons, although, applying the mechanistic test wrung out of me, the tax can be regarded as retrospective, in reality, when looking at the actual nature of what the tax has done and the reasons for the particular form of tax, it does not have the disadvantages in principle that a retrospective tax would apply normally be rightly denounced as having.
In business taxation it is not unusual for there to be an element of retrospection. For example, the self-employed are generally taxed on the preceding year basis, whereby the liability of the current year is determined by the profits of the previous year and the corporation tax rate is always determined in arrears, which is considered fair. However, I have placed that argument last because I do not attach great weight to it.

Mr. George Foulkes: What a climax!

Mr. Brittan: The hon. Gentleman is mistaken if he believes that it is meant as a climax. I am merely seeking to go through the various aspects in which the tax does not have the features of retrospectivity when looked at in reality as opposed to being looked at in form.

Mr. Douglas: Will the hon. and learned Gentleman address his mind to the question of retrospection? One of the arguments for accepting a retrospective tax is that everyone within its ambit would be treated equitably. The Chief Secretary has used the vague term, which I do not understand, of "endowment profits". He might care to define it. The proportion of the endowment profits of the individuals, companies or banks that come within this bracket should be similar. From the Co-operative Bank's point of view that is the case.

Mr. Brittan: There is no mystery about that, because the endowment profit is simply the profit caused by the increase in interest rates, for which the bank was not responsible. The tax is in the proposed form because by taxing a percentage on non-interest bearing current accounts we shall achieve exactly the effect that the hon. Gentleman describes.

Mr. John Browne: Is my hon. and learned Friend aware that at Barclays, which I know better than any of the other banks, only 11·5 or 11·6 per cent. of the total deposit base is accounted for by current accounts. A lot of the other deposits are bid for in the short-term market. My hon. and learned Friend's argument for the morality of retrospection concerned the question whether the target could have rearranged its affairs to avoid the tax. People who are bidding in the market for deposits upon which they lend can rearrange their affairs. I submit, therefore, that even under my hon. and learned Friend's argument this is still a retrospective and immoral tax.

Mr. Brittan: I do not think that that is right, because the tax is levied only in relation to the current account. Of course, if the banks had known that the tax was coming they could have taken evasive action by paying, for example, nominal rates of interest on the current accounts. In that sense they would have been able to alter their liability. Leaving aside specific evasive action to avoid the tax, the potential size of their current accounts was unlikely to be affected by this tax and its incidence. That is why we have chosen this way of levying the tax.
Another argument of principle that was advanced by some of my hon. Friends—and I should sympathise considerably with it if it were to be true—was the suggestion that by introducing a bank tax of this kind we were providing a precedent and an argument for the Labour Party to do worse. I do not share the optimistic, sanguine and cheerful view of Labour Members that my hon. Friends hold that in its present frame of mind the Labour Party requires any kind of precedent to take action of that nature. It is wildly unrealistic and extraordinarily naive to suggest that confiscatory or other deplorable action by a Labour Government would be more likely if we provided them with a few quotations that they could pray in aid in the event of their seeking such action. In its present frame of mind the Labour Party does not require any such precedent—

Mr. Budgen: This will only encourage them.

Mr. Brittan: I do not believe that Labour Members need any encouragement. We Conservatives are being extraordinarily optimistic if we believe that by an act of self-denial and self-restraint we will mitigate, remove or reduce by one jot or tittle the extent of a Socialist programme introduced by a Government headed by the right hon. Member for Ebbw Vale (Mr. Foot), if he still holds that position.

Mr. Tapsell: Notwithstanding what my right hon. and learned Friend has just said, is it not profoundly unwise to withdraw the moral basis on which we would have to found our opposition to retrospective taxation if we ever again found ourselves in Opposition?

Mr. Brittan: I obviously do not think that, because I have sought to explain—I appreciate that I have not done so to my hon. Friend's satisfaction—why this legislation does not contain the undesirable features of retrospection. I should have no hesitation in attacking legislation that had such features. I can see the argument put forward, but I do not share its conclusion. The precedent that I fear relates not to retrospection but to the singling out of a sector of the economy on the basis of its apparent success. My hon. Friend could put forward that argument. However we fool ourselves if we think that this measure will encourage them to do more, or if we think that our failure to undertake such a measure will discourage the Opposition from taking such action.
I turn to the conclusion of my general remarks—[HON. MEMBERS: "Hear, hear".] I should have been happy to finish my remarks a long time ago. However, many hon. Members seemed to be interested in what I might say in response to their interventions. That, and nothing else, has prolonged my speech. I shall turn to two general points of substance that are not related to particular arguments in relation to amendments. It has been suggested that the tax is excessive in relation to total bank profits. As the Chancellor of the Exchequer indicated in his Budget Statement, it is estimated that about 90 per cent. of the tax will be paid by the clearing banks. It is they who have enjoyed the bulk of endowment profits. Therefore, it is fair to look at the profits of the big four banks in 1979 and 1980.
The additional tax amounts, on average, to above 11 per cent. off the 1979 and 1980 pre-tax historic cost profits. That does not seem to be an unreasonable amount.

If overseas earnings for the big four clearers are discounted, the estimated liability is 18 per cent. of their aggregate pre-tax 1978–79 and 1980 domestic profits.

Mr. Wickenden: Does my right hon. and learned Friend accept that the document put out by the banking information service shows that the pre-tax domestic banking profits of the big four in 1979 amounted to £1,017 million? That is before any allowance for inflation on current cost accounting. Indeed, on any normal accounting basis, the windfall profit tax would account for 80 per cent. of those current cost-accounted and post-tax profits.

Mr. Brittan: In considering current cost account profits for tax purposes, the decision whether that should be done is a matter for discussion in our forthcoming Green Paper on corporation tax. At present, taxation liabilities are based on historic cost accounting. There are no grounds for regarding CCA profits as having a validity in this context. Therefore, I cannot accept what my hon. Friend the Member for Dorking (Mr. Wickenden) says.
In many ways the most important question is whether taking this amount of tax on profit is likely to harm the ability of the banks to assist British industry. As the purpose of the tax is to assist the Government in achieving their public sector borrowing requirement, which provides a base for recovery, it would be highly undesirable if the tax had that consequence.
I do not foresee that the once-for-all special tax will have a continuing effect on the banks' operations. It will not affect the banks' rate of return on future commercial operations. The special tax will be paid initially out of the banks' free reserves. Although it is impossible to predict the free reserve ratio for 1981, the effect on the big four clearers' free capital ratio for 1980 of paying the tax is estimated to be to reduce their free capital from 4·3 per cent. to 4 per cent., which would still be a generous figure and would undoubtedly be higher than the ratios that existed earlier in the 1970s.
It has been argued that every pound removed from the banks' capital base reduces their ability to lend by £15 to £20. I do not think that banks generally would accept that there is an automatic relationship between the size of their capital base and their ability to lend. It is right that that relationship has varied considerably between banks, within banks and within the same bank over the past few years. The amount of a bank's free capital is by no means immutable in the medium term and it is possible for it to be increased, if the bank so wishes, by means of a rights issue, if it is thought to be inadequate.
I accept, that many of my hon. Friends feel strongly that this tax should not be introduced. That needs no underlining. I have also made it clear that the Government would not have wished to introduce this tax, other things being equal. The Government do not introduce it with relish or enthusiasm. If that were so it would have been introduced last time.
The objectionable features customarily associated with retrospective legislation do not apply in this case. The case for taxing the endowment gain made by the banks as a result of the increase in interest rates is entirely respectable on its merits. I do not believe that it will harm the banks' ability to assist British industry. For that reason the Government have introduced the tax.

Mr. Barry Sheerman: I want to speak to amendment No. 60.

Sir William Clark: On a point of order, Mr. Armstrong. I wonder whether it has escaped your notice that the debate has continued for some time. We have just heard a speech lasting about 45 minutes. During the debate one Conservative Back Bencher has spoken, the leader of the Liberal Party, the spokesman for the Labour Party and now a Back-Bencher from the Labour Party. Is there any hope of a Back Bench Tory Member being allowed to speak?

Mr. Ian Wrigglesworth: Further to that point of order, Mr. Armstrong. It will not have escaped your attention that some members of the SDP have tabled amendments. I hope to have an early opportunity to speak in the debate.

The Second Deputy Chairman (Mr. Ernest Armstrong): I assure hon. Gentlemen that that has not escaped my attention. I have been paying careful attention to the calling of speakers, but hon. Members must leave the decision to the Chair.

Mr. Sheerman: I wish to speak to amendment No. 60. I declare an interest in the clause as a Co-operative Member. I am pleased to see in the Chamber my hon. Friends the Members for Edmonton (Mr. Graham), Dunfermline (Mr. Douglas) and South Ayrshire (Mr. Foulkes). I shall stick to that interest. We have had a broad debate and long speeches on the principles of retrospective legislation. I can understand hon. Members' impatience. I shall be relatively brief.
I am making the case on behalf of the Co-operative group. The case is based on equity of treatment. I intend to make some harsh remarks about the Bill's provisions as they affect the Co-operative movement. However, it would be churlish not to mention clause 25, which is beneficial to common ownership enterprises. It will ease the problems of raising capital for workers co-operatives. Perhaps the Minister is so shell-shocked that he does not realise that I am one of the few hon. Members who have said something nice about the proposals. I thank him for clause 25 on behalf of the Co-operative movement.
I cannot be that generous about clause 122. The effects of that clause are immense. It is a sledgehammer to the Cooperative Bank and small banks which do not have a large foreign business to protect them. The leader of the Liberal Party did not understand that banks with mainly domestic business will suffer under the clause.
The Co-operative Bank, like the TSB and the National Giro, are particularly hard hit by the legislation. Such banks will pay 40 per cent. compared with the 20 per cent. that the clearing banks will pay. The amendment concerns a group of banks which are based on a different principle from the clearing banks. That is not often admitted or even realised, particularly on the government Benches.
The Co-operative group in the House is not against the taxation of bank profits. However, this is perhaps the wrong way to tackle the problem. After the next election a Labour Government will fundamentally tackle the structure of the banking business. We shall change the nature of finance for industry. We shall change the banking system in a meaningful way. That is in the future, perhaps as late as 1984 but perhaps earlier.
The windfall profits of banks are the result of Government policy. I take the point made by the hon.

Member for Winchester (Mr. Browne) that there are ebbs and flows and ups and downs in the profitability of banks, but I come down firmly in the camp of my hon. Friend the Member for Blackburn (Mr. Straw) who says that the British banking system is highly profitable.
The Co-operative Bank and the TSB are founded on a different premise from that of pure profit making. They were not set up purely to make a profit for their shareholders. They are a different kind of bank. The Government are aware from the representations that have been made—so far unsuccessfuly—to the effect that these smaller banks will be particularly badly hit by these proposals. The purpose of amendment No. 60 is to avoid a disproportionate impact on small banks such as the Cooperative Bank, the TSB and the National Giro. Those banks do not seek to maximise their profits. They rely principally on domestic earnings and do not have the advantage of substantial overseas and related banking services. That sort of income is not available to cushion the impact of the levy.
The Government cannot ignore the importance of the small banks to the British economy, although the big clearing banks dominate the British scene, and although over the past 10 years the incursion of foreign banks, mainly American, into the domestic market has been quite surprising. But we must not underestimate the role of the Co-operative Bank and other smaller banks in providing an alternative banking system. It may not represent an overwhelming percentage of the market, but it gives the consumer a choice to bank with an altogether different kind of enterprise.

Mr. Ted Graham: My hon. Friend is too modest about the extent of the service that is given by the Co-operative Bank to consumers. Is not he aware that there are more than 4,000 banking in-store points in Cooperative stores, which are not restricted to normal banking hours, but are available to the 900,000 account holders during shopping hours? Thus, they are of great benefit to consumers.

Mr. Sheerman: I thank my hon. Friend. I was saying that the Co-operative Bank offers a different kind of banking service from the traditional banking service that is given by the great clearing banks. In many respects, it is a better service and one of which we in the Co-operative movement are particularly proud.
I am seeking to draw the Government's attention to the different nature of the enterprise. I want to give an example of the impact of the tax. In the case of the Co-operative Bank, the levy would be £4,450,000 against a group operating profit in the year to 10 January 1981 of £5,422,000. Thus, the levy would represent 82 per cent. of the last reported annual profit. That is far in excess of its incidence in the case of the great clearing banks. That is surely inequitable.
We have already seen the impact of the measures contained in the Finance Bill.
I wish that we had seen a larger number of hon. Members behind the Minister, and criticising him, when he introduced measures earlier this week that were inequitable to strikers and the unemployed. Those measures were more inequitable than the inequities to the banking system contained in this measure.
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I do believe, even with this Government, that it is the Chancellor's intention to impose such a disproportionate


charge on a part of the banking sector which in no way can be said to be motivated by a desire to generate obscene levels of profit. The amendment will not single out any bank for special treatment. It will ensure that the levy is more closely related to a bank's ability to pay. We do not believe that the amendment is the be-all and end-all. Perhaps it is not the perfect amendment for the Co-operative group, but at least it will go some way towards changing the position. There is a case for reconsideration of the levy in its present form.
I hope that the Minister, when he replies, will say that he has not closed the door on any consideration of the special position of the small banks. I noted with some regret his answer, under great pressure from a number of sources, to my hon. Friend the Member for Dunfermline. It appeared to be an immediate negative response. The liability of certain small banks will be more closely related to the banks' ability to pay if the amendment is accepted.
It is true that to accept the amendment would benefit all banks, and the Government would be £35 million worse off. They would have to find that sum from somewhere else. That is not altogether too disastrous for the Government. They would have to think again. The Labour Government had to think again when they withdrew the petroleum tax increase in 1979.
There is still time to reconsider, not simply on the basis of the amendment, but on the basis that certain treatment for the smaller banks would be equitable. The Government will lose no face at all if they introduce an amendment to change the incidence of the tax, which is wholly unfair and will be crippling to an enterprise that is different, offers an alternative co-operative banking service, and will benefit the growth of the banking system in a diverse manner in years to come.
The distinct disadvantage vis-a-vis the competitors to the Co-operative Bank, the TSB, and National Girobank cannot be fair. That disadvantage will be a direct consequence of the proposed tax. The amendment aims to remove an injustice. The principle of the tax is not contested by the Co-operative movement.

Mr. Wickenden: I shall attempt to be brief, Mr. Armstrong, as I know that many of my hon. Friends wish to participate in the debate. First, I wish to correct one or two misapprehensions about the banking system generally. Before doing so, I must ask you, Mr. Armstrong, whether I have an interest to declare. I think that I own a bank.

Sir William Clark: How many?

Mr. Wickenden: Only one. It is a merchant bank, of which I am a director. As I understand that it does not take current account deposits, I do not think that it is covered by the clause. I declare my interest, for what it is worth.
We have been given the impression this evening that banks are the fat cats of the industrial sector and form a highly undesirable area from which the Government and future Governments can extract taxes at will. The banks employ 250,000 throughout the country and they are one of our major industries. To the extent that lending may be affected by the clause, the employment prospects of their employees is reduced.
My right hon. and learned Friend explained at some length that there is nothing wrong with retrospection as such—a definition with which many of us would disagree. He argued that it was not objectionable if those affected

would not have ordered their affairs differently had they known that the retrospective legislation was to be introduced. I do not think that it can be seriously challenged on any normal banking grounds that the withdrawal of £400 million from the capital base of the banking system will have an effect on their ability to lend, in the long term, by about £6 billion. If the banking system had known that it was to have £400 million withdrawn from its capital base it would not have been so free with its lending over the past two years. That is the objectionable element. The banks did not have the opportunity of ordering their affairs differently.
We have heard much about the high profits that banks have had because of what is called the endowment effect of current accounts. I hope that it follows from that that when interest rates drop below a normal level, which the 1977 Prices Commission deemed to be 9 per cert. as adjusted, the banks and the other institutions that will be affected will be subsidised by Government repayment. That is unlikely to happen, but that must follow, in equity. If we take when interest rates are high, we must give back when rates are artificially low. Over the past 15 years rates have been artificially low more often than they have been artificially high.

Mr. John Bruce-Gardyne: Does my hon. Friend argue that if, as could conceivably happen, the oil companies that are operating in the North Sea were confronted by a slump in the international oil price, they should be entitled to a subsidy of petroleum revenue tax?

Mr. Wickenden: If we tax windfall profits when they are high, we must in equity give relief when they are low. That is the burden of my argument. I do not believe that that will happen. That is one of the reasons why this is an unfair tax, as to a large extent is PRT.
It has been questioned whether the banks are engaged in a risk business. It may be useful if I remind the Committee that as recently as December 1974, less than six and a half years ago, the chairman of one of the big four clearing banks had to call a special press conference on a Saturday morning to assure the City of London that that bank would not go into default on its deposits.
At that time the shares of that bank and of most of the big four banks were standing below par value, which made it impossible for them to raise a rights issue from their shareholders, even if it were right, as has been suggested this evening, for shareholders to be asked to put up cash for a rights issue so as to pay tax.
I draw attention to the difference of view that appears to some extent exist between Treasury Ministers. My right hon. Friend the Financial Secretary to the Treasury argued last year that to introduce a discriminatory tax on profits legitimately earned in one sector of the economy would require a strong case to be made and that in his judgment that case had not been made in respect of the banks that year.
That was last year, since when bank profits have declined, particularly domestic bank profits. Yet my right hon. and learned Friend the Chancellor, in a speech made this year at Chartered Accountants' Hall, said:
The case for special, once-for-all, tax on banks is a strong one.".
However, bank profits are lower this year than they were last, when my right hon. Friend the Financial Secretary said that no case had been made out. At the very least, there seems to be some dissension on the Treasury Bench.
My right hon. and learned Friend the Chancellor made an extraordinary speech at Chartered Accountants' Hall, although some of it was repeated this evening in the same words, which leads me to the conclusion that it was not entirely my right hon. and learned Friend's own speech. He added:
A ratio of 1 to 25 is comfortably above the ratios enjoyed by the clearers earlier in the 1970s".
That is a bad simile to draw, because earlier in the 1970s the banks were extended beyond all prudent banking principles. Indeed, we should not be looking for similar ratios to those which existed in the early 1970s.
I object to this tax on three main grounds. First, as has been admitted, it is retrospective. The effect of that retrospection will unfairly impinge on those who did not know—although there appears to have been a suggestion of a nod and a wink in earlier times—that the tax would definitely be introduced. It has been said that the levy is not retrospective, because the Chancellor mentioned it in his Budget statement last year and again in private conversations early in 1981. Surely that misses the main point. Banks, like anyone else, should not be punished for doing what is lawful. It is worth remembering that laws are made by Parliament and not by ministerial decree or by statements made in previous years.
There is an element of retrospection that I believe to be undesirable. My right hon. and learned Friend the Chief Secretary dismisses the argument that it will make it easier for the Labour Party to introduce retrospective legislation by saying that they would do so anyway. That seems to advance the argument that just because they are a bad lot it is all right for us to be half a bad lot.
Secondly, no point has been made on the industrial lifeboat that exists. A substantial industrial lifeboat is in existence at present, and it has been in existence for the past two years. It has been conducted on an informal basis. Had the banks' capital base been eroded it would not have been possible for them to make that lifeboat as large as it is. I believe that there is a serious danger that at least over the medium term it will be withdrawn.
Those hon. Members who enthusiastically support this levy may be less enthusiastic if further unemployment is caused in their constituencies as a result of facilities being withdrawn from local companies.
Thirdly, as amendment No. 50 will make possible another £2½ billion of potential bank lending, which will not be available if the levy is imposed, I recommend that amendment to the Committee.

Mr. Wrigglesworth: Before addressing my remarks to amendment No. 60, in the name of my hon. Friends and myself, I should like to comment on the general principles and arguments that have been advanced so far.
Clearly, all hon. Members want to try to uphold the principle of restrospection in the financial sector whenever they possibly can, and I would hope always in any other sphere. [HON. MEMBERS: "Uphold?"] I apologise. I meant to say that they would want to uphold opposition to restrospection and to stop it being introduced at any time.
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Action is taken by all Governments to forestall avoidance of taxation measures, and has been over a very long time. One has to look at each case in this sphere as it comes up. It comes ill, particularly from some Members

on the Opposition Benches who only two or three years ago supported legislation that had a restrospective element in it, to be criticising the Government in this case for introducing legislation that has an element of retrospection about it. [Interruption.] I am not against that. I voted for it when it was introduced previously and I am in favour of the legislation that is is being introduced this evening.
I thought that the Chief Secretary was rather uncomfortable in following the logic of his case against the prejudices and vested interests of his own party. I am very pleased that he felt able to do that, because I think that the case for this tax is a very strong one. The Chief Secretary,despite the reluctance that he expressed, put the case very, very strongly. In principle, the tax deserves the support of the Committee.
There has been a fair amount of comment from the Government side about the level of profits on banking in this country. I can only say to hon. Gentleman opposite that any who have experience of international banking and of banking in this country are only too aware that the level of profits in banking in this country compared to virtually any other country in the world are historically high, and have been very high in recent times. I should like to quote one extract from the Financial Times world banking survey that appeared just a couple of weeks ago to bear this out, because we should not weep too many tears for the banks that are faced with this levy on their profits. The article on Britain is that world banking review was written by Michael Lafferty, the Financial Times  correspondent.In that article he said:
Anyone who doubts that British retail banking is exceptionally profitable has only to look at the registration statement filed in April this year with the U.S. Securities and Exchange Commission by Barclays Bank. This shows that Barclays earned net interest margins of 6·6, 8·1 and 7·7 per cent. in the three years to December 1980 on its domestic lending. This compares with international lending margins of about 2·5 per cent. for the same years, and is far in excess of the margins achieved by other major banks either in Europe or North America, according to a study by IBCA Banking Analysis, the London research firm. The only country with banks which earn margins anything like those of Barclays appear to be Spain, a country which has so far seen little competition in retail banking.
To support that international view he went on to say:
The profitability of British banking, and the retail market in particular, is the main attraction behind the rival bids which emerged from the Royal Bank of Scotland group in March and April. Royal consists of two separate banks: Williams and Glyn's, the fifth English clearing bank, and Royal Bank of Scotland, the largest of three Scottish clearing banks, (the others are Bank of Scotland, and Clydesdale Bank, a Midland subsidiary). The jewel is Williams and Glyn's, with its 300 branches in England.
Mr. Peter Graham, chief executive of Standard Chartered Bank, said:
British banking is the most profitable in the world".
Lord Barber, of course, is the chairman of that bank and I would prefer to take his word and the report from the United States rather than the assertions that have been made by representatives of the large clearers and some of those that have been made this evening from the Government Benches. As I said, one would prefer that from the horse's mouth rather than some of the crocodile tears that we have heard emerging from hon. Members opposite during the course of the debate.
Coming to my amendment, the levy impinges upon certain banks in a quite capricious and, indeed, lethal way, as the right hon. Member for Huyton (Sir H. Wilson) said in the Second Reading debate. It does so on some of our


smaller banks in quite a staggering way. I hope that the Chief Secretary will take careful note of what some of his hon. and learned Frieds will be saying tonight about the extent of the impact on some of the smaller banks.
There is a gross inequality in the way in which this tax hits the various banks. Little judgment seems to have been made about the ability of the different banks to pay the levy that is being imposed. In my view and that of my hon. Friends the principle should be, in so far as it is possible to attain it, that no bank should pay proportionately more than other banks in relation to total profits.
Let me take, firstly, the trustee savings banks. These have been covered in another amendment, in the names of the Members for Ludlow (Mr. Cockeram) and Galloway (Mr. Lang). What I am about to say will probably be amplified by them later in the debate. If the Bill is not modified, either in the way in which we have proposed or by the amendment that I have just mentioned, it will tax the trustee savings banks to the extent of £10·3 million. There is one example that illustrates the impact of this tax upon the TSBs.
The worst impact will be on the TSB in the South-East, which will have to take the levy out of its reserves, because the levy will be in excess of its profits. For that bank, the windfall tax exceeds its forecast post-tax profit for the current year. As I say, the payment will have to be made from reserves. The relevant figures are that the bank's profit before tax will be £4·2 million; its normal corporation tax will be £2·2 million; and the windfall tax will be some £2·7 million. It will therefore have to take £700,000 out of reserves to pay the levy.
That cannot be right. It is a quite inequitable state of affairs. It is surely something that the Government must reconsider. Surely it was never intended that the tax would impinge upon banks so much that all their profits would be removed and they would have to pay all or some of the levy out of reserves.

Mr. Douglas: Will the hon. Gentleman therefore challenge the Chief Secretary's assertion in terms of retroactive taxation? A company, or a bank such as that about which the hon. Gentleman has been speaking, could not have arranged its affairs differently if it had known that this would be taking place.

Mr. Wrigglesworth: I take the hon. Member's point. That is absolutely right. He makes the point very clearly. I hope that the Chief Secretary will respond to it.
I was one of those—along with, I think, other hon. Members present—who went through the various stages of the Trustee Savings Banks Bill in 1976. We sought then—I think that we succeeded—to set all the trustee savings banks on the right course. They have made considerable progress since then but they are still in their formative years and have not yet got into a state of full health. Parliament having passed that legislation to give the TSBs this new start, I hope that we will not now seek to set them back many years by imposing this levy. They have not yet fully got out of the old public sector net in which they rested prior to that legislation—which was Labour legislation with support from the Conservative side. The TSBs still have about £1·1 billion lodged at the disposal of the Treasury, through the National Investment and Loans Office, and they are paid only 7½ per cent. on that.
Therefore, is it not asking a great deal of the trustee savings banks that they should be penalised in this way,

when they are under way towards a new role in the banking sphere and when they have funds on deposit in the Treasury at this rate of interest? They will be hit hard by the levy and should not be hit harder in any way in proportion, than the clearers.
There is a similar situation in the National Girobank. The House has made changes since that bank was established, in order to set it on a proper course. It made profits of about £7·8 million last year, which was a success in terms of the size of the bank. If our amendment is carried by the House the levy on the National Girobank will be reduced by about £3½ million.
The Co-operative Bank is in a similar position. It is wrong that 82 per cent. of that bank's profits should be taken by the levy, as against about 23 per cent. of the profits of the clearers. That bank, the National Girobank and the trustee savings banks are in a weaker position in terms of being able to sustain such an imposition on their balance sheets than are other clearers. Such a percentage take of their profits compares with 23 per cent. overall for the clearers. For Barclays it is 18 per cent. of its profits, for Lloyd's it is 21 per cent., for the Midland it is 26 per cent., and for the National Westminster it is 24 per cent.
Our amendment seeks to bring the take of the profits into line around the figure that the clearers are paying. I hope that the Committee—and the Chief Secretary—will feel that it would be equitable to bring the banks into line and to see that the smaller banks are not penalised by the blunt instrument of the tax in the way that they will be unless our amendment or another amendment is accepted.

Mr. Bruce-Gardyne: Surely the purport of the hon. Member's argument is that the levy should relate exclusively to the level of profit, regardless of how the profit arises. One cannot fail to make a distinction between the so-called windfall profits, which result directly from interest rates and not from any action of the banks as such, and profits that arise from other sources.

Mr. Wrigglesworth: The Bill does not do that, because it already has a threshold. We are seeking to increase that threshold so that the small banks are helped in the way that I have described. Therefore, the principle is already contained in the Bill.

Mr. Brittan: That is not right because a threshold is not a profit threshold but a level of current account threshold.

Mr. Wrigglesworth: Yes, but we are seeking to increase the threshold that is already there. I am arguing that one must take the impact of the tax on the banks in the round. I was going to say that those banks are non-profit making organisations in one sense. They are new organisations in another way. They do not have the international input to their profits that the longer-estabilished and bigger clearers have. They have not had the surpluses over many years to be able to invest overseas so that the profits are remitted back home. I am sure that we all want to see diversity in our banking sphere. Therefore, we should try to treat those smaller banks equitably in comparison to their big partners in the clearing house.
The Committee should view our amendment sympathetically. If the Minister feels that it is defective in detail I hope that he will not close the door tonight but will allow us to consider the matter further on Report,


particularly after he has heard representations from his hon. Friends and the banks. I hope, too, that we shall have the support of Labour Members. I am sorry that more are not here to support the amendment. It will be unfortunate if we do not have Labour support in the Lobby. We should demonstrate our support for the Co-operative Bank, the National Girobank and the trustee savings banks.

Mr. Straw: I am grateful to the Social Democratic Party representative for giving way. A large number of my hon. Friends have been present, including my hon. Friends the Members for Edmonton (Mr. Graham), for Dunfermline (Mr. Douglas), for South Ayrshire (Mr. Foulkes), for Huddersfield, East (Mr. Sheerman), for Harlow (Mr. Newens) and for Glasgow, Maryhill (Mr. Craigen). It ill behoves the hon. Gentleman to complain about absence from the Chamber when this is the first occasion on which he has been present for the Committee proceedings. The Social Democratic Party has been conspicuous by its absence in the important debates on poverty.

Mr. Wrigglesworth: My hon. Friend the Member for Gateshead, West (Mr. Horam) has made a considerable contribution to the debates on the Finance Bill throughout its passage.
The amendment closely concerns the Co-operative Bank, the Girobank and the trustee savings banks, so I would expect it to have wholehearted Labour support. I repeat that I hope that the Minister will not close the door on the amendment.

Sir William Clark: It has been an interesting debate, but the hon. Member for Huddersfield, East (Mr. Sheerman) took the biscuit when he said that small banks cannot afford the levy because they do not have overseas earnings. This is a sad day for the Conservative Party. We are arguing with niceties of phraseology about whether the tax is retrospective, when we know jolly well it is. We cannot talk our way out of this one. I am sufficiently old-fashioned to feel that when the Labour Party believes that a tax is a good tax, there is something wrong with the policy.
Many of my hon. Friends are concerned that this is a tax on success. Bank profits in 1980 were about £1,400 million, of which about £600 million was earned in the overseas markets—at the sharp end, where we are competing with the Germans, Swiss, Italians and so on. The entire £800 million made in the domestic market did not result from the high MLR, as the banks do many things that do not depend on the MLR. However, let us assume that the entire £800 million was made through the windfall arising from the Government setting the MLR at 16 per cent. or 17 per cent. To charge the clearing banks £400 million on that is a 50 per cent. impost on success. I and many of my hon. Friends are diehard supporters of the Government's economic strategy, but we object to the penalising of success when our party is supposed to be the one to encourage it. If a man wants to improve himself, do not penalise him. That is not Conservative policy.
In putting their case forward the banks were a little lax. They failed to get across to the general public or to hon. Members, certainly on the Tory side—I do not know whether they got it across to Treasury Ministers—that their

profits were split between home and overseas. The banks had talks with my right hon. and learned Friend the Chief Secretary and my right hon. and learned Friend the Chancellor about the Export Credits Guarantee Department.
My right hon. and learned Friend the Chief Secretary made a long intervention since we are to have a winding-up speech as well. In that speech he should have taken us into his confidence on what happened over ECGD. I should like to cut a chunk off the public sector borrowing requirement. We know all the arguments about increases in interest rates leading to inflation and the rest. I shall not rehearse them. But would the banks have taken on the ECGD liability? I am told that if they had it would have reduced the PSBR by about £1,000 million. Is that figure correct? My right hon. and learned Friend did not mention that.
My right hon. and learned Friend should have referred to the loan guarantee scheme. I accept that my right hon. and learned Friend the Chancellor said last year, in something of an aside, that he was looking into the issue of bank profits. But that was not giving notice to the banks. After that the Treasury team had discussions with the banks and the banks tacitly agreed to extend the loan guarantee scheme. The banks were to take 20 per cent. of the liability, with the Government taking the rest. Would the banks have taken that 20 per cent. if they had realised that they would be faced with this windfall profits tax? My right hon. and learned Friend must say something about that.
It has been suggested that if £400 million is removed from the banks' cash flow, that will affect potential lending of between £6,000 million and £8,000 million. In the long term the figure may be £3,000 million. These are huge sums, particularly when we are looking to the banks to help private enterprise, to help in the development areas and to help with the establishment of new businesses. If, by taxing the £400 million windfall profits, we are putting that at risk, what are the banks to do? Do they have a scrip issue? Do they go to the market and try to raise extra cash to top up their cash flow so that their borrowing requirement is not affected?
I welcome, for what it is worth, my right hon. and learned Friend's categoric statement that this is a once-for-all tax. We are all long enough in the tooth as politicians to know what "once-for-all" means. I wish that we could get the agreement of the Opposition, including that of the Social Democrats—indeed, of the alliance under which the leader of the Liberal Party courageously said that he would support the Social Democrats this evening—that this is only a once-for-all tax.
Although it is probably impossible, I wish that an assurance could be given by both sides of the House to the effect that this is a once-and-for-all tax. I appreciate the difficulty that my right hon. and learned Friend is in. However, Tory philosophy and policy is that we do not like retrospective legislation that will create a precedent. Despite what my right hon. and learned Friend may say, if this country were to be so unfortunate as to elect another Labour Government, they would seize on this opportunity. Our arguments would be weakened.
I appreciate the difficulty that my right hon. Friends are in. They have lost about £85 million of the reduced revenue on derv. We are still waiting to hear how that amount will be made up. I hope that it will be made up from betting, although not necessarily from horse race


betting. I am thinking also of one-armed bandits, casinos and so on. The money could easily be made up. It is impossible to replace £400 million at this late stage unless the standard rate of tax is tampered with. Having reduced the standard rate from 33 per cent. to 30 per cent., I would be diametrically opposed to increasing it. Therefore, it is Hobson's choice. What can we do about the £400 million?
At this late stage, we cannot accept the abolition of the £400 million. However, the Government should be clear about the matter. We must not shilly-shally. Let us accept that the measure involves retrospection and creates a precedent. We regret that. It is unfortunate. We have not tackled public expenditure with sufficient vigour. If we had done so, there would not have been any necessity for the £400 million windfall profit tax. I ask my right hon. and learned Friend to accept that the Conservative Party will regret this measure. I regret it, although I know that it is inevitable now.

Mr. Foulkes: My hon. Friends will be happy to hear that I have only a few remarks to make on this subject. I was inspired to speak by the Chief Secretary's amazing performance. Those who missed it missed one of the most exciting theatrical events of the year. Indeed, the performance of the right hon. and learned Member justifies the immediate rewriting of part of the script for the show at the Whitehall theatre. He performed an amazing acrobatic feat.
We did not get what we had expected. We did not witness a careful and devastating attack on the arguments put forward by the Opposition Front Bench. However, as the arguments were made so well, such an attack would have been difficult. Instead of attempting to make an attack the Chief Secretary turned to his alleged and potential supporters and pleaded with them. Labour Members could see only the back of the Chief Secretary's head. I can assure hon. Members that that is not his most exciting aspect. He turned to Conservative Members in a vain attempt to solicit their support.
There is a large turn-out of Conservative Members. There was no such turn-out when we debated the taxation of the unemployed and of strikers. The right hon. and learned Gentleman's attempts are in vain, because Conservative Members are here to look after their vested interests. He was addressing Conservative Members who had no intention of paying attention to him. For once, the right hon. and learned Gentleman was making a relevant point, yet his hon. Friends were ignoring it. He was talking to deaf ears—to people who knew their interests, who had their minds made up, and who would not be convinced.
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I noticed that in the course of what the hon. Member for Croydon, South (Sir W. Clark) described as an extremely long speech the Chief Secretary fell into some contradictions. I can understand how they may creep into such a long speech. At the start, the right hon. and learned Gentleman spoke of this measure as being essential to reduce the public sector borrowing requirement. He repeated the gramophone record that we hear so regularly—"his mistress's voice"—yet later he said that the money would be recycled into industry. He did not spell out how it would be recycled. He did not say what new incentives or financial assistance would be given to industry. He used a peculiar phrase about how the new base of the PSBR would somehow encourage industry, but that is different from recycling into industry the money

that will be taken from the banks. If that is what he was talking about, however, we should like to have more information about how the money will be recycled. That would, I am sure, be of interest to the whole Committee.
We had from the hon. Member for Thornaby (Mr. Wrigglesworth) a not unexpected intervention. We are getting used to the Social Democrats and their twists and turns in explaining away their previous affiliations, or occasionally trying to hang on to some of their erstwhile affiliations, but many of us find it rather sickening to listen to lectures from former members of the Labour Party.
In particular, the hon. Member for Thornaby tried to make a case about what is happening at this stage of the Bill regarding amendment No. 60, to which he had put his name. I remind him that we are in Committee arid, in considering amendments relating to the smaller banks, we can consider other courses of action apart from voting for or against one amendment. I hope that my Front Bench will explore possible ways of helping the Co-operative Bank, the trustee savings banks and the National Giro—ways that are more practical and sensible than that proposed in the amendment presented by the hon. Member for Thornaby.
I put my name to that amendment. Since I see some smiles at that, perhaps I should explain why. Only a short time was available to us—I know that the hon. Member for Thornaby had no longer to consider it—and discussions were taking place between the Co-operative Bank and the Minister which the bank thought would produce some results, because it believed that the Minister would see reason and accept the rational argument put to him by the bank.

Mr. Douglas: He may still.

Mr. Foulkes: He may still. I shall come to that. But prior to this debate and the submission of the amendment there was the hope that the Minister would see reason. He had not, however, seen reason as late as Thursday of last week, and therefore the amendment was tabled. I do not regret it as an ideal amendment. It does not do exactly what we want, because it means that the other banks also will be given some kind of relief. I do not want the other banks to be given such relief.
I hope, therefore—this is the purpose of the Committee stage—that if the amendment is not pursued my right hon. and hon. Friends on the Front Bench will enter into discussions and find a way of tabling an amendment that will give some relief to the Co-operative Bank, the trustee savings banks and the National Giro without letting off the banks that have the huge profits.

Mr. Wrigglesworth: Will the hon. Gentleman tell the Committee what consultations his Front Bench had with the Co-op Bank, the National Giro and the trustee savings banks before tonight's debate?

Mr. Foulkes: The Co-op Bank has been having detailed discussions with Co-operative-sponsored Members and the Co-op group, which is part of the Parliamentary Labour Party, but it first felt that it ought to try to persuade the Government to accept its point of view. Having failed to persuade the Government, I understand that they will now enter into detailed discussions with the Labour Front Bench to find a way to achieve their aims.
As my hon. Friend the Member for Dunfermline (Mr. Douglas) said, it would be better for the Chief Secretary


to the Treasury—who benefited from an excellent education, although he is not showing it in his attention to some of the points being made—to accept some of the points made by representatives of the small banks and in Committee by my hon. Friend the Member for Huddersfield, East (Mr. Sheerman).
I hope that right hon. and hon. Members have not been put off The Guardian by its publication of the Marplan poll, which disseminates useful information about how far ahead we are in the opinion polls. The Social Democrats did not feature in the poll in Scotland, published by the Glasgow Herald, until the respondents were prompted by the poll interviewers reminding them that the Social Democrats existed.
Mr. Lewis Lee, the chief general manager of the Co-op Bank—who was the optimist who hoped that he could persuade the Government to change their minds—is quoted in The Guardian as saying of the Co-op Bank:
we are a different kind of bank. We do not aim to maximise profit, let alone make windfall profits.
It is and has been our stated policy immemorially to share profit with our customers in lower charges and this we have continued to do during the year in question. So we have no windfall profit. If none the less it was decided to penalise the Co-op Bank along with the other banks the impact would be 'ludicrously disproportionate.'
That has been said by a number of hon. Members tonight.
We cannot believe that it was the Chancellor's intention that the Co-op Bank, owned ultimatedly by 10 million small co-operators up and down the country should be relieved of 80 or even 90 per cent. of its profit when the average impact on the Big Four appears to be around a third of that.
Our case for the moment rests on our belief in the sense of fair play which we none the less attribute to the Ministers and officials who guide them.
That is a noble sentiment indeed, attributing fair play to the Ministers and to the officials who guide them. I hope that the argument that has been effectively made by my hon. Friend the Member for Huddersfield, East and, indeed, by the hon. Member for Thornaby and the leader of the Liberal Party, speaking for that great conglomerate new alliance that exists—

Mr. David Steel: Not yet.

Mr. Foulkes: The right hon. Gentleman is still here, as a sort of Shirley Williams surrogate in reverse drag, and he fits the part well.
I hope that the argument in favour of the smaller banks has been made effectively, if not by myself by the previous speakers. I hope that we have a sympathetic response from the Chief Secretary to the Treasury or from our Front Bench which will enable us to find a formula that will help the banks and that we can support in later stages.

Mr. Robert Banks: I am tempted to join the general discussion on the clause but, due to the lateness of the hour, suffice it to say that I dislike all forms of taxation. Least of all do I like once-for-all taxation. I suspect that in the fullness of time it might well become a "once every so often" tax to be levied. For that reason, I have the strongest reservations about it.
My amendment deals with the base level of the £10 million figure in the clause. A similar amendment has been tabled by the hon. Member for Huddersfield, East (Mr. Sheerman) and others, but it deals with the matter in a more extravagant way. My amendment is modest and I hope that it will find favour with the Govwernment.
I recall the Budget speech by my right hon. and learned Friend the Chancellor of the Exchequer. When referring to bank profits, he said:
A substantial part of these profits is the direct consequence of high interest rates in recent years; this applies in particular to so-called 'endowment profit' on current accounts on which no interest is paid".—[Official Report, 10 March 1981; Vol. 1000, c. 772.]
That statement has been referred to on several occasions this evening. I do not challenge that statement in so far as it applies to the clearing banks. Indeed, I believe that my right hon. and learned Friend had in mind the big five clearing banks when he uttered those words. Strictly, I should refer to the big six clearing banks in England, but for general understanding it is easier to refer to "the big five".
My amendment seeks to assist the smaller fish, the smaller banks. The proposed tax is a flat rate of 2½ per cent. on an average of chargeable deposits in excess of £10 million held on three dates over the last three months of 1980, that being the quarter referred to. In effect, it is a tax on the windfall that arose from obtaining high rates of interest on money lying in customers' current accounts which do not rank for interest payments. For the sake of clarity, I shall refer to current accounts rather than non-interest-bearing chargeable deposits, which is a bit of a mouthful.
The high street banks—the nine London and Scottish clearing houses—have high volumes of current accounts. The services provided for their customers are largely paid for by the use of current account credits or deposits to generate bank revenue from interest obtained. We fully understand that. However, the clearing banks receive greater benefit from current accounts at times of high interest rates than at times of low rates, since the cost of providing their services is not directly linked to levels of interest. Their profits reflect that.
The banks that are not members of the London and Scottish clearing houses are in a different position. Most of them have different types of banking businesses. They include, of course, the merchant banks, wholesale banks, foreign banks, savings banks and others. Some are small and others large in turnover terms. Generally, they have relatively few accounts on which they do not pay interest, and those are only sometimes incidental to their activities. Their current account balances are, therefore, small, both absolutely and in relation to interest-bearing deposits, whereas the clearing banks have more substantial current account balances in relation to their total business.
I understand that the level of current account deposits is mostly specifically negotiated with customers with reference to interest rate levels at the time, so that the bank concerned may derive sufficient interest revenue to cover the cost of its services to the customer. The benefit of high interest rates is therefore, almost without exception, passed on to customers, because lower deposits are negotiated. In the case of such banks, the windfall element of their profits is absent. Likewise, the nature of their operations is based on close personal banking services and they cannot make the sort of economies of scale that are available to the big five.
That is all the more relevant during a period of high wage settlements, such as was experienced in banking last year. It would not be unfair to say that those settlements were chiefly not activated by the smaller banks.
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My amendment aims to give some relief to those banks which I do not believe fall into the category of candidates liable to this tax. It does not call for a radical change in the scheme. If I take a fishing analogy, it does not seek to prevent trawling but just to use a slightly larger gauge of net. By raising the base level from £10 million to £15 million, some of the smallest banks could come through the net altogether. To others, it would be significant, because less tax would be paid. To those other small banks it would be less tax on what I shall term "real profits", not windfall profits.
No doubt the clearing banks would welcome a reduction, even though it would be hardly noticeable to them. About 90 per cent. of the estimated £400 million to be raised by the tax will be paid by the clearing banks. I regret that I cannot accurately calculate the cost of this proposed amendment, but it would be very small.
This country can pride itself on being the banking centre of the world, and I hope that my right hon. and learned Friend will agree to bear a little more gently on the younger and smaller elements in it.

Mr. Eggar: Before coming to amendment No. 41, standing in my name, I shall say a word about the general principles that are involved in this tax.
This is a bad tax. On that even the Opposition are agreed. It is a bad tax, first, because it is retrospective. I must tell my right hon. Friend, with respect and with a certain sadness, that I was far from convinced by his arguments about retrospection. I preferred the definition of retrospection that was given by my hon. and learned Friend the Minister of State, Treasury in 1978.
I do not want to go into all the arguments about why the tax is retrospective. If the Government had said "We do not like this tax, because it is retrospective and it sets an appalling precedent, but where else can we find the money?" at least those of us with reservations about the tax would have had to consider where else to find the money. The Government's argument was disappointing and even—dare I say it?—slightly dishonest.
However, the tax is not only retrospective but discriminatory, and in an unfortunate way. The speech of the hon. Member for Blackburn (Mr. Straw) brought home the impact that the tax will have. If it affects banks this year, who will it be next year? Farmers, perhaps? The chemical industry? It sets a precedent so that any profitable industry at the top of its cycle can have an arbitrary tax placed on it retrospectively. That is the principle and the precedent about which Conservative Members are concerned.
Attempts have been made—not, I admit, by my right hon. and learned Friend tonight—to justify the tax on the ground that it is similar to the tax that was imposed on oil companies or the one that was imposed on television companies. There is no such similarity. Oil companies are exploiting a natural resource that rightly belongs to the nation and should be taxed accordingly. Television companies are exploiting an artificially created monopoly that was created by the Government. That is certainly not the case for the banks—[Interruption]. My hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) should not make sedentary observations. If he wishes to interrupt he should get up and do so.

Mr. Bruce-Gardyne: Will my hon. Friend explain who creates the minimum lending rate?

Mr. Tapsell: I thought that the market did that.

Mr. Eggar: I do not want to interrupt a private conversation between my hon. Friends the Members for Horncastle (Mr. Tapsell) and Knutsford. If the argument is that the Government raises MLR, which creates an artificial profit, fair enough. If it was the Government's intention to have consistently high interest rates during the past two years they should have said when they took office "We will have high interest rates and place a tax on the banks". It should not be done retrospectively.

Mr. John Watson: Will my hon. Friend give way?

Mr. Eggar: No. I know that my hon. Friend wants to make his speech in his time. I am sure that we shall all listen to him with great care. I suspect that he will support the Government.
The tax is fundamentally ill-conceived because it is being introduced when domestic profits for the main clearing banks have fallen by 19 per cent. As my right hon. and learned Friend said, the average rate of MLR has been 2 per cent. higher than last year. Yet domestic profits have still fallen by 19 per cent. How can it be said that the tax will retrieve the endowment and domestic profits that the clearing and other banks have earned?
My right hon. and learned Friend went further. He said that the justification for imposing the tax was that the Government were concerned about the public sector borrowing requirement and about money supply. So are we all. There is no doubt about that. But if it had been the Government's intention to introduce measures to help the PSBR, why did they not accept the offer made to them by the clearing banks to take over ECGD funding? That would have had an effect on the PSBR of £750 million.
If the Government were concerned about the effect on the money supply, I have to tell them that the effect of this tax is exactly the same as taking £400 million in special deposits from the banking system. The effect is the same whether there is a tax of £400 million or special deposits of £400 million, especially if special deposits are not interest bearing.
Another argument used by my right hon. and learned Friend was that the tax of £400 million was necessary to assist industry. I am disturbed to hear that the Government believe that they are best at transferring funds from one sector of the economy to another. I have always assumed that Conservatives believed that the private enterprise system and the private enterprise economy were the best means to effect such a transfer.
My right hon. and learned Friend said that bank domestic profits had fallen because of the high level of increases in wages paid by the banks last year. I admit that it was a dramatic increase, which I deeply regretted. But, in fairness, the banks compete with the Government for the majority of their staff. The majority of the 250,000 who work in the clearing and other banks are fairly low-paid clerical workers who have the same types of skill and expertise as those employed in Government offices throughout Britain. One of the reasons why the banks had to increase their levels of pay was the dramatic increase in the levels of pay of Government employees. That must not be overlooked.
Amendment No. 41, which stands in my name, is deficient in some respects. It was tabled as a debating amendment. Bank profits are over-stated when considered


in historical tax terms. Unlike industrial companies, the banks can take no advantage of stock relief. They have no form of indexation for the payment of corporation tax on profits. If current cost profits are calculated, the effect of the levy on the clearing banks will be to take about 80 per cent. of all current cost profits after corporation tax. I have been unable to ascertain the effect of the tax on the United Kingdom clearers' domestic profits, but I am assured by National Westminster that the effect of the levy and corporation tax will be to leave it with about £24 million profit from all its domestic banking operations last year. A considerable chunk of its profits will be lost.
Amendments Nos. 57 and 60 stand in the name of my hon. Friend the Member for Harrogate (Mr. Banks) and members of the Social Democratic Party. It is pleasant to find that the small banks are the tenuous bridge that links SDP Members and Labour Party Members. It is rather touching that banks should bring them together. It will be interesting to see whether the Co-op-sponsored Members on the Opposition Benches will be prepared to support the Social Democratic Party's amendment if it is pressed to a Division.

Sir William Clark: And the Liberals.

Mr. Eggar: Indeed. I do not support the amendments, for reasons that are simple. The tax already discriminates against banks in general. The effect of both amendments, whether the figure is raised to £15 million or £150 million, means that the tax will discriminate against fewer banks. There is no reason why the imperfect competition in the banking and financial markets should be further weakened.
It is said by the Government that the clause affects the tax that is paid on retail domestic banking deposits. We are told that it is specifically designed to take away the endowment profit on the domestic banking operation. The argument advanced by the smaller banks is that they do not have the international banking operations to cushion them, so they do not have the extra profits. If the Government's argument for introducing the tax is that it will take away domestic profits, it is curious to say that we must extend the clause to cover the smaller banks because they do not have the advantage of the considerable international profits.
Conservative Members are aware that although this is a wrong and thoroughly bad tax, the Government will have their pound of flesh and the tax will come into effect. However, we want a clear undertaking—much clearer than the undertaking given earlier—that the Government have no intention of introducing another such tax during the life of this Parliament. We should like that spelt out clearly and specifically.

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Mr. Douglas: I shall be brief. I immediately declare my interest as chairman of the Co-operative group in the House. I should therefore like to speak to amendment No. 60, which has already been mentioned by my hon. Friends the Members for Huddersfield, East (Mr. Sheerman) and South Ayrshire (Mr. Foulkes) as well as by the hon. Member for Thornaby (Mr. Wrigglesworth).—[Interruption.] A Conservative Member indicates that he

is not sure whether he owns a bank. My difficulty is to determine whether the bank owns me. That is the difference between them and us.
The hon. Member for Enfield, North (Mr. Eggar) made a great play of profits in relation to the banks' domestic activities. Amendment No. 41 might be marginally acceptable to the Co-operative Bank, because it would bring it more into line with the Government's proposals.
I draw the attention of the Chief Secretary to the discussions between the banks and the Inland Revenue, particularly the Co-operative Bank. If the right hon. and learned Gentleman intends to argue that it is right for the Government to introduce retrospective legislation, my answer is based on equity. There is always a case for Governments re-adjusting taxation. No Government or Opposition could put their hand on their heart and say "We will never have retrospective legislation".
If we accept that things such as windfall profits and economic rent are taxable, and if they accrue not because of economic activity, the Government have a right to cream them back, both in the economic interest and in terms of balancing the economy. That is the role of Government and I do not detract from it. It is no good the Opposition arguing against that case. However, if that is to be done, it should be done equitably.
The hon. Member for Thornby deployed his considerable political skills and knowledge of this matter to inquire whether the Co-operative group and others would support him in the Lobby. I do not intend to support the hon. Gentleman's amendment because by its nature it seeks to probe the Government's intentions. It would be difficult to support it in the Lobby and carry it into practice because of the crude nature of the tax as well as the necessarily crude nature of the amendment itself.
I am seeking from the Government some assurance that they recognise the unfair impact of their crude tax on the smaller banking sector. If they do not do that I believe they are being very unfair indeed. I can realise the Chancellor's position. He found himself with a larger public sector borrowing requirement than he had anticipated. He had to do a number of things that perhaps he did not want to do, such as having a particular form of taxation on the oil companies. He would not necessarily want to do that. He therefore had to raise another £400 million in terms of the banks. He may not want to do that either. The structure of this tax can be seen to be unfair, because theoretically it is levied on what we call chargeable assets. Its impact is on profits. If it will be argued, as the Chief Secretary has argued, that if they are some form of endowment profits these endowment profits ought to be the marginal profit, the 10 per cent. top rate profit. When one looks at the impact of this tax on the profits of the Co-operative bank it will be seen that they do not meet the 10 per cent, or the 15 per cent. or the 30 per cent. provisions. The impact will amount to 80 per cent. In no case could it be argued in equity that that is a justifiable imposition on what the Chief Secretary argues are endowment profits. I am going on his own assertions here, and I say to him that if he pursues this line my hon. Friends who are on the Committee—and I hope that I will carry the Labour Front Bench with me—will seek to put down further amendments to get the position adjusted.
I want to be very clear on this. We are not saying it is wrong to have retrospective legislation.

Mr. John Roper: rose—

Mr. Douglas: Does the hon. Member for Farnworth (Mr. Roper) want to intervene?

Mr. Roper: I am most grateful to the hon. Gentleman. I was concerned about the part of the Committee stage at which he wishes to put down any further amendments.

Mr. Douglas: I understand from previous experience that there is likely to be a Report stage. Discussion can take place, I hope, on this and other clauses of the Bill. There is time for further discussion and further refinement. This is what the Committee is for. [Interruption.] Perhaps I am being very trying, but the Committee is trying to look at the Government's intentions and not trying to argue a massive case for getting a reduction of revenue of £100 million or so. We seek a reduction of revenue of £2 million or £3 million. The hon. Member for Thornaby wants to intervene again.

Mr. Wrigglesworth: I am grateful to the hon. Gentleman. I want to be helpful. I would point out that we tabled this amendment only after considerable discussion of various forms of amendment with the Trustee Savings Bank, the National Girobank and the Co-operative Bank. We do not regard it as a probing amendment. We regard it as a means of bringing about the sort of changes we think are necessary.

Mr. Douglas: The hon. Member has made his case in relation to what he considers to be the efficacy of the amendment but I trust he knows that its effect, if it were put into practice, would be to give considerable advantages to the other banks as well as the three that he has named. The other banks would get an additional advantage which I would argue, from my point of view, is undeserved. My point may be a narrow one, but I think it is a valid one in equity. I rest my case not as a lawyer, but as an economist arguing an equitable case in relation to the impact of taxation. It is wrong to put the impact of this taxation, if it is on endowment profit, on an 80 per cent. level. If the Government do not recognise that, then they are failing in their duty and responsibility.

Mr. Eric Cockeram: I want to refer to amendment No. 52, standing in my name and that of my hon. Friend the Member for Galloway (Mr. Lang). In line 22, after the word "England", we seek to insert
a Trustee Savings Bank as defined in the Trustee Savings Bank Act 1976".
I must declare an interest, because I am a trustee—which is the word used in the Act; in more commercial usage, the term is probably "director"—of the Trustee Savings Bank, North-West, the largest of the trustee savings banks.
As the Committee will know, there are 17 trustee savings banks, organised on a regional basis, federated together under an umbrella organisation—the Central Trustee Savings Bank—which has a parliamentary panel of hon. Members on both sides of the House of Commons, of which I have the privilege of being chairman.
The trustee savings banks differ from the clearing banks in that they deal only with personal customers. They do not deal with commercial firms. The consequence of that is that their deposits are very small sums by comparison. They total a large figure—about £555 million—but they derive from 2¾ million customers. It works out at an average of about £200 per account, which is a very small sum in relation to the London clearers, with their commercial accounts running into very big figures.
Since the TSBs do not make any bank charges to customers who keep a balance of £50 or more in their account, it follows that very few customers pay bank charges with the TSBs.
In addition to the TSBs' deposits of about £555 million, it is by chance that the second and only other figure that I wish to quote is almost exactly twice that figure—namely, £1,100 million. That is lodged, not at any option of the TSBs but compulsorily, with the Fund for Bank Savings, which is a Government fund managed by the Treasury especially for the TSBs. This derives from the historic background to the TSBs prior to the Page report and prior to the statutory changes and reforms that have taken place with the TSBs.
This fund of £1,100 million is lodged effectively with the Treasury, and the TSBs get interest on that money of only 7½ per cent. If, therefore, the minimum lending rate—as has been the case—is raised to 17 per cent., it is not the TSBs which make the windfall profit. It is the Treasury, because the Treasury is getting that money at 7½ per cent., and it is the Treasury which has the opportunity to lend it on at 17 per cent. or more, as the case may be. It is manifestly inequitable that the TSBs will have to pay this tax on the so-called windfall profits when it is the Treasury that has made the windfall profits.
I appreciate that the total funds of the TSBs are very much more than the figures that I have quoted, but again, to put them in perspective, they are personal deposits of £555 million, upon which this tax is to be levied, and £1,100 million, twice as much, is lodged with the Treasury at penal rates.
The Chief Secretary said that banks derive their profits not merely from home trading but from trading abroad, and that they were not paying tax on those overseas profits or deposits. That is not the case with the TSBs, which operate entirely within the United Kingdom. In consequence, they have not had the opportunity—they do not have the opportunity; they are statute-barred from trading abroad—of making profits overseas to balance out the impost of this tax.
My hon. Friend the Member for Croydon, South (Sir W. Clark) referred to the banks' support for the Government by supporting the Export Credits Guarantee Department and thereby helping to reduce the public sector borrowng requirement. The TSBs joined in that. They lent about 10 per cent. of their customer liabilities.
In his speech, which I regret was lengthy, as is the debate, the Chief Secretary used arguments that were equally tortuous. He said that the banks that had to pay the tax could go to the capital markets if they ceased to expand their capital base. He was right about the clearing banks but he was totally wrong about the trustee savings banks and the Co-operative banks. They do not have access to the capital markets. They are mutual co-operative banks, whatever one may call them. That argument is not valid in this case.
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Consequently, I seek to remind the Chief Secretary that the tax bears particularly heavily on the trustee savings banks. The hon. Member for Thornaby (Mr. Wrigglesworth) has already referred to one savings bank, namely, the Trustee Savings Bank, South-East, which is for the London area. It has been calculated that as a result of the clause it will pay a sum in tax that will not only totally wipe out all its post-tax profits but will cause a loss.


To the best of my knowledge, it will be the first time that a member of the Clearing Banks Association has produced tax loss in its annual accounts.

Mr. Robin Maxwell-Hyslop: My hon. Friend's North-East has company in the South-West, where that trustee savings bank will have to raise its reserves to £200,000 which will extinguish all its profits and requires a raid on the reserves of £200,000.

Mr. Cockeram: I am grateful to my hon. Friend for adding to my argument. I was not aware that another trustee savings bank was affected so severely. All the banks are affected in one way or another. Those which have not only all their profits confiscated as a result of the tax but have to raid their reserves are in a situation that I hope no Conservative Government would contemplate.
I hope that the Chief Secretary will pay particular heed to the arguments that have been advanced about the smaller banks—the banks that do not have access to the capital markets, that do not trade overseas and that consequently will be paying a higher percentage of their post-tax profits—in two cases it is over 100 per cent.—than the London clearers.

Mr. Soley: The debate has been marvellous stuff. I would not have missed it for all the tea in China. For the first time I understand what is meant by the Tory Party at prayer. Members of that party are down on their knees begging the Minister to leave bank profits alone. It is a marvellous sight. Early in the morning, there are dozens of them all over the Benches. The other day when we were dealing with taxes on low-income earners, there were only a handful of them here, with just one speaker.
There was also the debate on capital transfer tax, otherwise known as handouts to the rich. There were no speakers and only a handful on the Back Benches at that debate. The hon. Member for Thornaby (Mr. Wrigglesworth) chided some of the absentees on the Labour Benches. There have been eight members of his party here during the debate today—at times it has been less and at times it has been more. I do not blame them for being interested in their amendment. That is fair enough. However, one should ask the hon. Member for Thornaby what the order of priorities is. Why are there eight SDP Members here for this debate when there was only one SDP Member occasionally here for the debates on taxes on low-income groups and capital transfer tax?

Mr. Wrigglesworth: When we heard that Labour Members would not be voting for the amendment, we had to rustle up as many Social Democrats as possible to ensure that there was a substantial vote.

Mr. Soley: I was asking about the Social Democratic Party's order of priorities. The hon. Gentleman will not answer that question. There is a different emphasis among the various parties.
The hon. Member for Winchester (Mr. Browne) left the Chamber for a while, I am sure for good reasons. I thought that he might be riding shotgun for Barclays Bank in case the Minister staged another raid on profits. The hon. Gentleman made a marvellous speech, which brought tears to my eyes. I had visions of bankers—those ragged-trousered philanthropists—queueing outside supplementary benefit offices, their cheeks pinched and hollow and

their coats thin, with collars turned against the bitter north wind of a Tory Government. The hon. Gentleman has considerable financial knowledge, and I wish that he could make a similar speech for the low-paid. I was so moved by his speech that when the banks open tomorrow I shall rush to the Midland Bank to cash a cheque, which I gather will now cost me 50p, as I do not have an account with the bank. If I am feeling generous, I may cash two, as I know that the money will go to a good cause.
I do not like retrospective legislation as a general rule, but if it is a choice between retrospective taxation on banks, which, by any standards are not poor, and giving benefits to the low-paid, who always lose out, we must choose the former. A moral principle is involved in retrospective legislation and in the division of wealth in our society. We must decide our priorities between the rich and poor.
Bank profits have been high in the United Kingdom, yet our economy has had no advantage over other economies where they have been lower. Alas, banks such as the Co-operative Bank will suffer unfairly from the tax. The Government have bungled the economy. Despite their talk of making people suffer, we are seeing a handout to the rich with capital transfer tax and a big defence campaign for the banks by Tory Back Benchers. The party of mass unemployment has also become the party of high taxation and retrospective legislation.

Mr. Peter Hordern: The Chief Secretary said that he introduced the levy with great reluctance and only after careful thought. The Financial Secretary gave careful thought to a similar proposition a year ago, but came to a different conclusion. However, my right hon. and learned Friend did not say why he found great difficulty in introducing the levy. His remarks were addressed solely to the need for it.
My right hon. and learned Friend dealt with the retrospective element of the levy with curious ambivalence. None of us likes retrospective legislation, but it is strange for my right hon. and learned Friend to argue that it does not matter what the Opposition fee because, if ever they formed a Government, they would not hesitate to introduce a levy. I cannot help wondering what would be the position of the Conservative Party in Opposition when that occurred. What arguments would we be using in that event? My right hon. and learned Friend should mount an adequate and suitable defence for such an occasion. It is a sad day for the Conservative Party when it introduces retrospective legislation of this sort.
One could always say that the national interest is involved. Like my right hon. and learned Friend I think that it is worth examining the considerations that the Government had to take into account in deciding whether to impose the levy. I do not altogether agree with my right hon. and learned Friend's conclusions. It is not necessary to be a wholesale friend of the banks and to say that there are no arguments on the other side. I agree with those who argue that the banks would have done much better if they had stressed the small size of their current cost accounted profits and the wage claims upon them, and perhaps the dividends that they paid to their shareholders.
There are practical considerations that my right hon. and learned Friend did not address himself to, no doubt through lack of time. He said that the banks could easily restore their capital by having rights issues. The difficulty about that is that if such issues are to be underwritten a


profits forecast must be given. How is such a forecast to be made if there is a risk of a levy of this nature, which could happen at any time that the banks, through the nature of their business, happened to make a large profit?
The effect of the £400 million being taken from the banks is supposed to help in reducing the PSBR. My right hon. and learned Friend will know the argument about the negotiations that took place between the clearing banks and the Treasury on the alternative method of taking over the financing of ECGD from that department. I understand that that would have saved the PSBR some £750 million rather than £400 million. Will my right hon. and learned Friend deal with that argument when he replies to the debate?
The important point is that the £400 million that is to be taken is the base upon which the banks will be able to lend no less than £6,000 million. I cannot help but believe that this is a singularly bad time to remove the capacity of the banks to lend that sum when the economy is in its present state. I do not think that it is a good swap to suggest that the Government will better be able to help industry in some way—

Mr. Brittan: It is not a swap.

Mr. Hordern: My right hon. and learned Friend is right. It is no swap to take £400 million in tax, thereby depriving the banks of the ability to lend £6,000 million. That unwise action will have another strange side effect. I wonder whether it was calculated in arriving at this decision. The banks will not stand idle. They will get the money by borrowing it in the money market. In doing so they will increase the rates of interest in that market. That will create a gap on some days as between the short-term money market rates of interest and the MLR.
The effect of that will be to increase the money supply. The money raised from the money market is one of the measures of the money supply. That has a curiously perverse effect. Unfortunately, that is not the only effect. A distinction might be drawn between short-term money market rates and the minimum lending rate. The provision will also have the effect of allowing company treasurers to borrow from the banks and to lend on to the money markets with a margin in between. That will also increase the money supply.
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For all those reasons, the levy will have a thoroughly perverse effect. The Government have not thought this matter through. Unwillingly, I have come to the conclusion that far from helping industry, this measure will create further difficulties for it. The minimum lending rate will have to be kept at this level for longer than would otherwise be necessary and formidable problems may be created in the money supply. We shall see.
The banks are better judges of what industry needs and of how those needs are to be financed than the Government. I do not have as much confidence as the Government have in the Department of Industry's ability to pick winners, but I have confidence in the banks' abilities to supply money to their customers. For those reasons, I believe that the measure has not been thought through.
I turn to the subject of small banks. I shall not labour the points, as they have already been made well. I cannot mention the name of the bank that I have in mind, as I have not got permission to do so. However, in the case of one

bank the levy amounts to £2·1 million and the profits available to pay it amount to £900,000. I am glad that my right hon. and learned Friend is taking note, because the effective tax on that bank is 167 per cent. Such a levy, and its consequent effect, cannot have been intended. Like many hon. Members, I hope that my right hon. and learned Friend will take this point into account either in Committee or on Report and come forward with suitable amendments.
The debate has been extraordinarily interesting. As far as I can recollect, this is the first time that the Opposition have officially come out in favour of nationalisation of the banks. That was a significant statement from no less a man than the hon. Member for Blackburn (Mr. Straw). It was impossible to interpret his words in any other way, He implied that the official Opposition are in favour of nationalising the banks. If that is so, it is an important announcement, which will be widely noted.

Mr. Watson: I am glad to have an opportunity to say a few words in support of what the Government are trying to do. I agree that the time is right for some form of special levy on bank profits.
About a year ago I first started asking what were then thought of as somewhat embarassing questions about the level of bank profits. About a year ago the banks started to announce high profits. They seemed to be related entirely to the level of interest rates and to be unrelated to the quality of judgment exercised by bank management. They seemed to be substantially unrelated to the risks that they ran. The high bank profits seemed similiar to the high profits that television companies made from their monopolies, or to the high profits made by North Sea oil companies from the windfall of North Sea oil. In those circumstances, I could see no intellectual reason why the banks should not be treated in the same way as oil or television companies. I could not understand why they should not succumb to some form of special tax.

Mr. John Browne: My hon. Friend said that the profits were unrelated to the business of the banks. However, given the state of the United Kingdom's economy, have not the risks attached to loans in the domestic sector vastly increased? Given that vastly increased risk, the income should be much greater in order to cover the risk. Many loans are made to companies that will be doubtful for many years to come. In part, I should have thought that profits reflected the business of the banks.

Mr. Watson: There is an element of risk but. I would say that the major element of risk has been completely accommodated by the banks when they have increased by 400 per cent. their bad debt provision.
I should add that my enthusiasm for some kind of tax on bank profits was, if anything, increased when the so-called corset restriction was removed in the summer of last year, and all sorts of distortions then came home to roost which showed that the banking industry had not exactly been co-operating with the Government's intentions in the manner that it had originally stated.
Since the Budget announcement that there was to be this special levy, the arguments have been rehearsed very fully, and I pay tribute to the banking industry for presenting its arguments with great skill, care and thoroughness. Some of those arguments seem to me to be undeniable. I think it undeniable that the levy will militate against overseas earnings. I think it undeniable that certain aspects of the levy are discriminatory and unfair.
It is certainly clear that the return that banks are making on their capital at present is no longer as high as it was and no longer so high as is being made in some parts of manufacturing industry. On the other hand, perhaps we should not expect it to be anyway. A large part of a bank's increased asset base is contained in its interests in freehold and leasehold investments in high streets throughout the country. Those investments, unlike investments in manufacturing machinery, are at least likely to keep pace with the rate of inflation.
It is undeniable that this is retrospective legislation, and to my mind that is the most regrettable aspect of it.
It is undeniable also that it can be used as a precedent. Perhaps I may add in parenthesis, that after we had heard my right hon. and learned Friend the Chief Secretary say that in some ways is was not retrospective legislation or, if it was, it was in some way justifiable retrospective legislation, and we then heard the hon. Member for Blackburn (Mr. Straw) say that he would use it as a precedent, I was reminded of two quotations. The first was about the dinner guest of whom the host later said "The louder he proclaimed his honesty, the faster we counted the spoons." The second—I was reminded of this by hearing confessions of the hon. Member for Blackburn, saying that this measure would indeed be used as a precedent—was from Mark Twain, that "Confessions are good for the soul but are normally pretty bad for the reputation."
There are, however, a couple of aspects of this matter that still deserve coverage in the debate. In the first place, although I concede that this tax is effectively retrospective, that it sets a precedent, that it is discriminatory and that it militates against overseas earnings, there is one argument of enormous power which can still be set in its favour—that the Government need the money. If that had been said with greater clarity during the debate, there might, I think, have been somewhat more sympathy for it.
Next, there are two arguments advanced by the banking industry which I regard as open to more challenge than has been mounted against them tonight. First, it is said, "If you tax us like this when times are good, how will you compensate us when times are bad?" With respect, I do not regard that as a particulary sound argument. We have heard it said that bank profits are cyclical. Indeed, at one time I almost had a bet with one of my hon. Friends about who would be the first to say that they were bicyclical. But it there is any cycle in bank profits it is a cycle between their being moderately satisfactory and being very good. The only occasion that I can recall when bank profits were bad was in 1974 and 1975, and the reason why they were then very bad was due not to any cycle or windfall element but simply to the bad judgment of the bankers themselves in lending to so many property companies at that time.
Secondly—this is the most serious argument—it is said that at a time of high inflation we must allow the banks to retain a large portion of their profits if they are to maintain their elemental gearing ratio. I take that argument on board, but I wonder why the banking industry feels that, in advancing it, it is so different from the rest of Britain. When I argue that with colleagues in the banking fraternity they normally tell me that because I have never been in banking I cannot understand what they are talking about. I reply that they have never been in manufacturing 

industry, and therefore I can forgive them for not understanding fully the problems that face manufacturing industry. Shortly afterwards we start hitting each other.
The gearing ratio to which the banks pay so much attention is, to me, little different from the debt equity ratio, which has become almost biblical for manufacturing industry. Someone in manufacturing industry faced with inflation also needs a greater amount of take-home profit to finance working capital, to maintain existing levels of stocks and to replace machinery that inevitably has become more expensive since first it was purchased.
Most manufacturing companies in the past two years have not been able to increase their profits. They have had no alternative but to increase debt equity ratios. Some members of the banking community say that they should be afforded a liberty of manouevre by the Government which circumstances alone have denied to those in manufacturing industry. That is arrogant. Therefore, for those two reasons there is much to be welcomed in what the Government propose—perhaps more than has been acknowledged by Conservative Members tonight.

Mr. Tom Benyon: I am pleased to have a chance to speak briefly in the debate, although many of the arguments I intended to muster have been recycled at least four times.
It is nice that the Government admitted at the beginning that their reason for passing this unsatisfactory retrospective tax on bank profits was that the banks have the money and the Government need it. When one says that one has said the lot.
I could not understand, due to my inexperience in the House and my naivety, why, when I expressed my doubts on the unsatisfactory nature of the tax, that my specific "usual channel" appeared to be singularly uninterested. Later I realised his reasons for being singularly uninterested were, first, because the amendment will probably not be put to the vote and, secondly, because the Labour Party will support it. The fact that I might be a defector could not matter less.
I agree with my hon. Friend the Member for Croydon, South (Sir W. Clark) that the Conservative Party should watch carefully any tax that goes down so enthusiastically with the Labour Party. I cannot believe that this is a Tory tax. It is indiscriminately levied and is justified on the basis that the banks have made super, or windfall, profits. It is possible that the Government will give some of the money back to manufacturing industry. Socialists like the Robin Hood principle of taking from the rich to give to the poor. We have heard that so often in the past.
I have done some research on Robin Hood because I thought that it would be useful to bring it to the debate. Robin Hood legends are wrapped in mythology. There are many variants of what he did. However, anyone who has ever studied Robin Hood agrees on one point. He was a robber. However, he was a nice robber with good motives. His intentions were pure. He believed that his aims to give to the poor justified his means, which involved robbing the abbeys and the houses of rich earls. However, there is one snag to that story. That is that there is no evidence that he ever gave anything to the poor.
According to a man called Stow who did a lot of work on Robin Hood, he entertained "100 tall men, all good archers," with the spoil he took. That means that the money got lost in administration. If anyone thinks that the £400 million which is being taken from the banks will be


spent on manufacturing industry or the poor—which was mentioned earlier by the hon. Member for Hammersmith, North (Mr. Soley)—he is living in a world of his own.
12.45 pm
The Government believe that the current economic climate justifies the bank profits tax. They believe that the ends—shortage of money and the national interest—justify the tax, discriminating and retrospective as it is. I do not believe that the ends ever justify the means. More bad law is passed on that assumption than any other.
This is not the first time that a tax has been introduced by Government using an emergency as an excuse. We are so used to Governments acting in that way that there is now little protest over this new example. We should not forget that that was not always so. Passive acceptance of unacceptable taxes is a modern feature of the contemporary political scene. Earlier generations put up long and arduous struggles against what they considered to be arbitrary and penal taxation. If there had not been a struggle we might never have had a Parliament and America might not have won its independence. The history of taxation is full of cunning tricks played upon a gullible electorate. The most used trick in the past, as it is today, is to use the excuse of national emergency to introduce a temporary tax which somehow turns out to be permanent. That is how income tax was introduced in 1799 when the younger Pitt needed money to finance his war with revolutionary France. It was called a temporary measure, but it stayed for 17 years.
Gladstone introduced an income tax in his 1853 Budget. He promised to repeal it in seven years. However, in 1854 the Crimean war broke out, Government expenditure rose sharply and Gladstone declared that he could not keep his promise, but was ever so sorry. Purchase tax was a war-time innovation which was not supposed to last. It was introduced to boost war-time revenue temporarily, but it stayed.
The banks are right to make vigorous protests about this new impost. However, I do not believe that it will make much difference. I can find no example of an outside body making representations to a Chancellor which stopped him imposing a tax that he wished to impose. On many occasions hon. Members have put pressure on the Chancellor to modify tax. I know of only one example of an outside force influencing the Chancellor. That was in 1053 when the Earl of Mercia decided to impose a tax on the people of Coventry. The only way that it could be stopped was by Lady Godiva riding through the streets of Coventry on a white horse covered only by her long hair. The earl responded. The wives of the chairmen of the clearing banks might consider growing their hair, mounting horses and possibly riding down Downing Street. I can promise them that the street is short and that my right hon. and learned Friend will not peep. However, that will not matter because the tax has come to pass.
The Government have used the unpopularity of the banks as a chance to impose this inexcusable, retrospective and discriminate tax that amounts to the appropriation of shareholders' funds. It cannot be excused or explained by Government needs. Government needs are always urgent. There is always enough bad news to generate a crisis if one is needed to defend the indefensible.
The retrospective element of the tax is defended on the ground that Ministers warned the banks that the tax was

likely. I cannot accept that. The tax is retrospective. Just because a Minister might have mentioned the possibility that such a tax might be imposed does not change the retrospective element. We are not, thank goodness, governed by ministerial diktat.
The tax sets a precedent for other taxes to be applied in the same way. Why not tax other companies which make profits from Government policy in defence and engineering? Ministers might argue that such companies earn their profits and banks do not. That is not sensible. Try telling that to a Socialist Government when they are short of money. They will stick their snouts into any convenient gravy boat and use our example as a precedent.
If Socialists had introduced this tax we should have condemned them for allowing expediency to rule principle. We would have condemned them for having the nerve to confiscate shareholders' assets without compensation. We would have reminded them that the assets that they were expropriating in such a way did not belong to people in top hats smoking large cigars, but to unit trust holders, the beneficiaries and potential beneficiatries of pension schemes and insurance policies who depend on profits for their savings, their ease in retirement and a safe future.
We would have been right to condemn Socialists. The people own the banks, not the institutions. We would have condemned the Socialists if they had proposed such a tax on the ground that such an arbitrary tax would act as a threat to every cyclical industry which attempted to plan its affairs, on the assumption that it may face an arbitrary levy at its cyclical peak. From now on, anyone contemplating a large, high-risk venture must reckon that not only may he lose all his money if it goes wrong but he may restrospectively be taxed if it goes right Let anyone who thinks that I am overstating the case ask the oil companies.
This tax is retrospective in concept. It is discriminatory in that it singles out the banks without anyone attempting to make a serious effort to show that bank profits are excessive relative to industry in general. It is arbitrary in its amount and incidence. No attempt has been made to assess ability to pay. The tax should be particularly offensive to any Government who are in favour of encouraging profit. Gradually over the years the public have been educated to believe that "profit" is a clean and not a dirty word. Criticism has come now from many quarters. I shall not quote the newspapers that condemn the tax, because time is passing, and I am sure that hon. Members will have read what they say.
The worst feature of the tax is its retrospection. People and institutions should be able to act in the knowledge of the law passed by Parliament, and not have to anticipate the uncertain intentions of Ministers. I hope that the Government will consider the proposal carefully. It can get through the Committee only with the reluctant support of the payroll vote, the surly compliance of their Back Benchers and the enthusiastic support of Socialists.

Mr. Straw: This has been a fascinating and entertaining debate, which has given us a new insight into the workings of the Conservative Party. Conservative Members can read each week of the goings on inside the Parliamentary Labour Party, but it is not so often that Labour Members have an insight into what must go on in the 1922 Committee. We are grateful to have had this opportunity.
The debate has also demonstrated the great contrast in the concerns of Conservative Back Benchers about the changes that are proposed in the Budget. Yesterday we had debates on the Government's wholly unjustified and despicable proposals to tax short-term social security benefits without reinstating the 5 per cent. that was taken away from those benefits on the ground that they were to be taxed and until they were taxed. Only one Conservative Member spoke in that debate.
A week ago we had a debate on the way in which the Government were forcing up the tax burden—the State putting its snout in the trough, to use the eloquent language of the hon. Member for Abingdon (Mr. Benyon)—on virtually the whole working population, in complete contradiction to the Conservative manifesto. In that debate not one Conservative Member spoke throughout the day, and only one or two were present during the debate.
Yet tonight, when we are simply debating the taxation of what are unquestionably windfall profits for the banks, the Conservative Benches—even at 12.55 in the morning—have been full, and no fewer than 40 Conservative Members have been present throughout the debate. That is an indication, if any were needed, of the relative sense of priorities of Conservative Members.

Mr. Tapsell: Does not the hon. Gentleman think that the capacity of the commercial banking system to lend £6,000 million to British industry at the present levels of unemployment is a matter that deserves our serious attention at this hour?

Mr. Straw: I do not dispute the interest and concern that hon. Gentlemen display in this issue. I only wish that they would show the same interest and concern in the other issues, particularly when their Government break their election promise and force up taxation. That is the issue. I am sorry that the hon. Member and so many of his colleagues found reasons to be absent when clear breaches of election policy were debated.
I hope to be brief. I wish to deal with the issue of the smaller banks—the Co-operative Bank, the National Girobank and the TSB. In doing so I shall refer to the speeches of my hon. Friends the Members for Dunfermline (Mr. Douglas), South Ayrshire (Mr. Foulkes) and Huddersfield, East (Mr. Sheerman), who are supported by their colleagues in the Co-operative group—my hon. Friends the Members for Edmonton (Mr. Graham), Harlow (Mr. Newens) and Glasgow, Maryhill (Mr. Craigen).
The Opposition Front Bench recognises the clear concern of the smaller banks about the way in which the tax may impact upon them, and the possibility that it will be discriminatory against them. We support the imposition of the tax overall, but it should be fair and equitable between larger and smaller banks. We accept that it may not operate in a fair way in its effect on the smaller banks. We shall listen carefully to what the banks and our colleagues have to say. We shall raise the matter in Committee, because the schedule to the clause, which goes into a great deal of detail, will provide an opportunity to discuss the matter. If we are not satisfied with any undertaking given we shall raise the matter again on Report.
I am sorry that the hon. Member for Thornaby (Mr. Wrigglesworth) should have tried to mix it between his

concern for the Co-operative Bank and that of his former colleagues who are still members of the Co-operative group inside the Labour Party. My colleagues and I have made repeated efforts to contact the Co-operative Bank to seek its comments. It is a reflection not on us but on the bank that its comments were not forthcoming until earlier today. The reason for its reticence was given in the Financial Times on 24 March, which discussed the tax on the Co-operative Bank, the National Girobank and the TSB under the headline
Banks windfall profits tax may be eased for the Co-op and the Giro
The article said:
They understand this to mean that they should not launch any public campaign against the tax or talk to the press about the matter. In return, the implication is that their objections will be met eventually by the Government.
I should be grateful if the Chief Secretary would say something about the Government's attitude towards the way in which the tax will impact on the smaller banks.
A central issue in the debate was retrospective. As I listened to the Chief Secretary's remarks I became more confused. He said that the tax was retrospective but not objectionable, because the tax could not have been avoided even if the banks had known about it in advance. But he also said that the tax had to be retrospective because it could have been avoided by people charging interest on the due dates. In two paragraphs the Chief Secretary contradicted himself.
The Chief Secretary voiced the anxiety that the Opposition might use his arguments as a precedent to justify future retrospective legislation. I assure him that we would seek better arguments than his. In the speech that I made some hours ago in the earlier part of the debate I have no recollection of saying—the Official Report will contain the exact words that I used—that the next Labour Government will nationalise the banks. I quoted a leading article in the Sunday Express which voiced concern that a future Labour Government would use the tax to justify nationalisation. Conservative Members know enough about the workings of the Labour Party to know that I do not write its manifesto. I know that that is of great concern to Conservative Members. They would sleep easier in their beds if I wrote it but I do not, and it will not be written for at least another two years.
1 am
Although Conservative Members entertain great fantasies about retrospective legislation that future Labour Governments may introduce, I know of no proposals that are circulating in the Labour Party to introduce retrospective legislation. They need have no worries on that score, either. This is a major piece of retrospective legislation that could easily have been avoided by the Government if they had decided last year to tax bank profits and had taken measures to do so at the time.
The justification for the tax is that, apart from the size of the profits, its yield will be used to help industry. That was the Chancellor's argument when he made his Budget Statement on 10 March. He argued that the taxing of these profits would enable the Government to help industry. I hope the Chief Secretary will say exactly how the Government intend to use the £400 million to help industry, as the Chancellor suggested.

Mr. Brittan: As I indicated when I spoke earlier, I proposed in my opening remarks to deal with the main arguments and considerations and to deal in the closing


remarks with some of the amendments that had not then been spoken to. I shall confine my general remarks to a few short comments. [HON. MEMBERS: "Hear, hear."] I welcome that encouragement for speed. I hope that I shall escape criticism for not dealing with some contributions because I follow the advice that has been given.
First, there seems to be some doubt about the basic purpose of the tax. My hon. Friend the Member for Abingdon (Mr. Benyon) suggested that we should have made it clearer that we wanted to introduce the tax to raise money. I welcome the opportunity to do so. I thought that it was axiomatic and unnecessary.
Secondly, my hon. Friend the Member for Croydon, South (Sir W. Clark) castigated the tax as penalising success. I hope that I made it clear that that is not its purpose. It seeks merely to deal with that part of the banking business—it is only a small part of its total success—which derives from matters over which it has no control, namely, the increase in interest rates.
Reference was made, especially by my hon. Friend the Member for Dorking (Mr. Wickenden) to capital ratios and the question whether the tax will prevent banks from lending money to the extent that would otherwise be possible. It is true that capital ratios are higher now than in the mid 1970s. They are greater than those that applied over the earlier part of the 1970s, before the problems of 1973. That seems to support the proposition that even if we considered the relationship between the size of the banks' capital base and the ability to lend, the small diminution in the capital base caused by this tax could not be regarded as likely to impair their ability to lend. Therefore, I do not accept the estimate used by several hon. Members that a removal from the banks of £400 million would lead to an inability to lend to the extent of £6,000 million.
Reference has been made to the alternative ways in which the money could have been obtained as well as to the discussions between the Government and the banks. Ministers spent a lot of time trying to secure the agreement of the clearing banks to the proposals for sharing the costs for subsidised export credit when that was high as a result of high interest rates from which the banks were benefiting. The banks felt unable to agree and said that they would prefer a statutory tax to such an arrangement.
Their alternative proposal was to offer to resume responsibility for a large part of fixed-rate lending at present refinanced by the Government. The effect of that would have been to bring forward PSBR savings which would otherwise have occurred when the refinanced loans matured, but there would have been a corresponding increase in the PSBR in the later years. That was not a substitute for the cost-sharing proposals, because it did not represent a real contribution by the banks to the Government's fiscal needs. As the banks were not prepared—for reasons that were perfectly understandable—to provide the contribution on a voluntary basis, there was no alternative but to impose it by way of this special tax.
Let me now deal with some of the specific amendments. The amendment in the name of my hon. Friend the Member for Winchester (Mr. Browne) would base the tax on the average non-interest bearing sterling deposits held over the years 1975 to 1980, instead of those held in the last quarter of 1980. The argument against doing that was deployed by my hon. Friend the Member for Skipton (Mr. Watson), and I shall not repeat it.

Objection was also taken to the retrospective element in the tax, but that would only be greater as a result of the amendment proposed by my hon. Friend the Member for Winchester.
My hon. Friend the Member for Dorking has tabled an amendment to reduce the rate from 2½ per cent. to 1½ per cent. That would substantially reduce the take of the tax. As my right hon. and learned Friend the Chancellor explained during his Budget Statement, the tax at the rate of £400 million was a crucial and essential element in his Budget strategy and in his attempt to bring down the PSBR.
In that context, hon. Members asked how the £400 million would assist industry. There is no mystery or need for doubt or surprise about what that meant. My right hon. and learned Friend explained during his Budget Statement the measures that he proposed to assist industry. He also announced a reduction in the minimum lending rate and made it clear that it would not have been possible to take those measures were it not for the contribution made by the bank tax to the nation's general finances, particularly the PSBR.
The effect of the amendment in the name of my hon. Friend the Member for Enfield, North (Mr. Eggar) would be that the total of corporation tax and tax chargeable under this clause would not exceed 52 per cent. of the current net profits earned for 1980 in the United Kingdom. My hon. Friend was candid enough to say that that was a peg on which to hang some of his points, rather than a suggestion that he wished to put forward seriously. I therefore accept it in that spirit.
I shall now deal with the very serious points raised about particular sectors of the banking world by a number of hon. Members—particularly some hon. Members on the Government Benches—in relation to the Co-operative Bank, and also in relation to the Girobank and the trustee savings banks. I think that this matter was first raised by my hon. Friend the Member for Harrogate (Mr. Banks) in his amendment, which would increase the de minimis level from £10 million to £50 million. In so doing it would exclude certain banks altogether from the tax.
I accept that the effect on some of the smaller banks that are in a special position, in that the tax is being applied to them on a fair basis in relation to the endowment element, may, because of their structure and size, be more substantial than in the case of the clearing banks. I understand that argument. What I can say at this stage is only that we shall continue to consider the points that have been raised in the debate in relation to these various matters.
I am not in a position to make a statement about these matters now, but I understand the force of what has been said and I accept that there may be considerations that require attention. Whether we shall be able to take action that will assist those concerned, and in what way we shall do it, is something on which I am not in a position to give an undertaking tonight.

Mr. Cockeram: I am grateful to my right hon. Friend. Does he include in his remarks the trustee savings banks, which are, in effect, 17 small banks? He referred to the Co-operative Bank. Does he include the trustee savings banks?

Mr. Brittan: Yes, I certainly do, but, in fairness, I want to make it quite clear that I can do no more than say


that I will look carefully into the points made by my hon. Friend and others and that I accept that in certain respects some of these institutions are in a different position. The extent to which that argument holds would require more time than I think the Committee would wish me to spend at this time. I do not accept at all the totality of the arguments, but I shall look into the matter and consider whether or not any action is appropriate.

Mr. Sheerman: In regard to what the Minister has said, especially in relation to the smaller banks, can I hope that what he meant by that was that discussions with those banks will continue to take place on an open-ended basis?

Mr. Brittan: I think that what I said was sufficiently clear. I am afraid that I am neither able nor willing to go any further tonight. I hope that I have dealt with the bulk of the amendments that have been put forward I would only say to the Committee, as I said at the outset, that I do not present this tax as being something that one puts forward to the Committee or to the House with enthusiasm, but I assure my hon. Friends that it is necessary and justified.

Mr. John Browne: I thank my right hon. and learned Friend for having led such a stimulating and interesting debate. I listened with great interest to his arguments but I cannot say that I accept them all. I believe that many of my hon. Friends feel the same way about this tax. Despite what my right hon. and learned Friend says, we feel that it is retrospective and discriminatory. However, I feel that we have registered our anxiety and deep concern for this proposed legislation and I therefore beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: No. 60, in page 103, line 7,leave out '£ 10' and insert `£150'.—[Mr. Wrigglesworth.]

Question put, That the amendment be made:—

The Committee divided: Ayes 13, Noes 111.

Division No. 182]
[1.15 am


AYES


Alton, David
Sandelson, Neville


Beith, A. J.
Steel, Rt Hon David


Brocklebank-Fowler, C.
Wainwright, R.(Colne V)


Cockeram, Eric
Wilson, Gordon (Dundee E)


Ellis, Tom (Wrexham)



Lyons, Edward (Bradf'd W)
Tellers for the Ayes:


Maclennan, Robert
Mr. John Roper and Mr. Ian Wrigglesworth.


Owen, Rt Hon Dr David



Penhaligon, David





NOES


Alexander, Richard
Arnold, Tom


Alison, Michael
Baker, Nicholas (N Dorset)


Ancram, Michael
Banks, Robert





Benyon, Thomas (A'don)
Mather, Carol


Berry, Hon Anthony
Maude, Rt Hon Sir Angus


Bevan, David Gilroy
Maxwell-Hyslop, Robin


Biffen, Rt Hon John
Mellor, David


Biggs-Davison, John
Meyer, Sir Anthony


Blackburn, John
Miller, Hal (B'grove)


Bowden, Andrew
Mills, lain (Meriden)


Brinton, Tim
Murphy, Christopher


Brittan, Leon
Myles, David


Brooke, Hon Peter
Neale, Gerrard


Brown, Michael (Brigg &amp; Sc'n)
Needham, Richard


Bruce-Gardyne, John
Nelson, Anthony


Cadbury, Jocelyn
Newton, Tony


Carlisle, John (Luton West)
Normanton, Tom


Carlisle, Kenneth (Lincoln)
Page, Rt Hon Sir G. (Crosby)


Clark, Sir W. (Croydon S)
Page, Richard (SW Herts)


Clegg, Sir Walter
Patten, John (Oxford)


Cope, John
Percival, Sir Ian


Costain, Sir Albert
Proctor, K. Harvey


Crouch, David
Raison, Timothy


Dean, Paul (North Somerset)
Rees, Peter (Dover and Deal)


Dorrell, Stephen
Ridsdale, Sir Julian


Douglas-Hamilton, Lord J.
Sainsbury, Hon Timothy


Dover, Denshore
Shaw, Giles (Pudsey)


Dunn, Robert (Dartford)
Shelton, William (Streatham)


Eggar, Tim
Shepherd, Colin (Hereford)


Elliott, Sir William
Silvester, Fred


Fairgrieve, Russell
Speed, Keith


Faith, Mrs Sheila
Speller, Tony


Fenner, Mrs Peggy
Spicer, Jim (West Dorset)


Fookes, Miss Janet
Stanbrook, Ivor


Fowler, Rt Hon Norman
Stanley, John


Gardiner, George (Reigate)
Stevens, Martin


Garel-Jones, Tristan
Stradling Thomas, J.


Gow, Ian
Taylor, Teddy (S'end E)


Griffiths, Peter Portsm'th N)
Tebbit, Norman


Gummer, John Selwyn
Thatcher, Rt Hon Mrs M.


Hawksley, Warren
Thomas, Rt Hon Peter


Heddle, John
Thompson, Donald


Henderson, Barry
Thorne, Neil (llford South)


Howe, Rt Hon Sir Geoffrey
Trippier, David


Howell, Rt Hon D. (G'ldf'd)
Waddington, David


Hunt, David (Wirral)
Wakeham, John


Hunt, John (Ravensbourne)
Waller, Gary


Jopling, Rt Hon Michael
Watson, John


Kaberry, Sir Donald
Wells, Bowen


Le Marchant, Spencer
Wheeler, John


Lloyd, Peter (Fareham)
Wickenden, Keith


Lyell, Nicholas
Williams, D.(Montgomery)


Macfarlane, Neil
Wolfson, Mark


MacGregor, John



McNair-Wilson, M. (N'bury)
Tellers for the Noes:


Major, John
Mr. Robert Boscawen and Mr. Alastair Goodlad. 

Marlow, Tony



Marshall, Michael (Arundel)

Question accordingly negatived.

Clause 122 ordered to stand part of the Bill.

Bill (Clauses 1, 4, 19, 23, 27, 29, 88, 89 and 122; and Schedules 1, 2 and 11), reported, with an amendment; to lie upon the Table.

Orders of the Day — Marches and Processions (London)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Mather.]

Mr. Deputy Speaker (Mr. Bryant Godman Irvine): Before I call upon the hon. Member for Mitcham and Morden (Mr. Douglas-Mann), to raise the subject of the effect on the Mitcham carnival processions of the ban on marches in London, I should inform the House that Mr. Speaker has considered the application of the sub judice rule to this proposed debate in the light of current proceedings brought by the Campaign for Nuclear Disarmament questioning the validity of the ban.
Mr. Speaker has decided to exercise his discretion to allow the proposed debate so far as it concerns the effects of the ban upon processions such as the hon. Member has in mind. He trusts that neither the hon. Member nor the Minister will find it necessary to canvass the vires of the current prohibition in the course of their remarks.

Mr. Bruce Douglas-Mann: I take note of what you say, Mr. Deputy Speaker. I assure you and the House that I had already taken account of the fact that proceedings are before the courts. It is not my intention to raise the vires of the present order.
I wish to raise the general issue of the ban on marches and processions in London and in particular the prohibition on the Mitcham carnival procession on Saturday 16 May. I shall not attempt to deal with the wider issues of the Public Order Act 1936, which are dealt with in the Green Paper published last April and in the Home Affairs Select Committee report of last August. I shall deal only with the question whether the existing powers under section 3 of the Act are sufficient to enable an order to be made that would prohibit the National Front from marching through Brixton, which is desirable, but which would also permit wholly innocent events such as the Mitcham carnival from taking place.
The ban has produced ludicrous results. The Fulham carnival has been banned and the procession of the Bromley Brownies Queen of the May was endangered, although I am glad to say that it was eventually permitted on condition that the band did not play.
The Mitcham carnival is a traditional event involving 70 or more local charities, schools and youth groups who have been working on the floats for the procession for a considerable period. That procession is also caught by the ban, even though the local police have, so far as I am informed, no objection to it. This sort of event is important, and not only for the charitable fund-raising that it achieves. It is what holds a local community together. It gets people away from their television sets to work with their neighbours for a communal purpose. If the law provided no other way to prevent the danger of serious public disorder, which some of the marches contemplated by the ban might, I accept, cause, it would be imperative that we should have legislation. But I submit that it is by no means necessary to use a blanket order of this type to prevent the kind of march about which concern is felt.
Section 3 of the Act gives power to ban a particular class of procession in a police area or any part of it. Section 3(1) gives power to impose conditions if the procession is to take place. At worst, if it were thought necessary—and I do not think that it is—one could ban all marches or

processions for a political purpose. Of course, there would be problems for the police in identifying which processions were political and which were not. If there were any doubt a ban could be imposed and the organisers of the march could apply to the courts for an injunction to prohibit the application of the ban. Such applications can be heard very quickly.
Even a ban on political marches is too wide. If, for example, the march of the unemployed from Liverpool were prohibited from entering London the political and public order repercussions would be enormously greater than those arising from any peaceful march. ft is regrettable but true that there are people who would much prefer a confrontation to a march. They should not be given the opportunity of turning a procession into a pitched battle.
I hope that the Minister will be able to assure me—I specifically ask him to deal with this point—that the banning of the Bromley Brownies and the Mitcham carnival is not being looked upon as a convenient precedent for a ban on this summer's Notting Hill carnival. It would be foolish to pretend that there is no danger of trouble or riotous disorder in the closing hours of the carnival. I live in Notting Hill and, like most of the residents of the area—white and black—1 deplore the events that have often occurred at the end of the carnival and dread their annual recurrence. But banning the carnival—certainly banning the carnival procession-will do nothing to prevent that violence if that is what a minority intend.
There was no carnival in Bristol or in Brixton when the riots broke out there. If a carnival had been planned and had been prohibited vastly more people would have been involved, and I dread to think what might have happened. I hope, therefore, that the Minister can assure me that my anxieties on that score, at least, are groundless.
The present reality is a prohibition of all marches and processions in the Metropolitan Police area until 23 May. This is one of seven similar bans that have been imposed this year throughout the country. However, over the past 30 years no such universal bans have been imposed. In 1978 the present Commissioner of Police of the Metropolis imposed a two-months' ban on all marches
except those of a religious, educational, festive or ceremonial character customarily held within the Metropolitan Police District.
At worst, such a ban could be substituted for the present blunderbuss order, which hits far more targets than it was ever intended to strike.
I suggest to the Minister, to the Home Secretary and to Sir David McNee that everything that they wish to achieve could be done by an order that prohibited marches or processions that are likely to involve incitement to racial hatred, or the display of banners, flags or emblems in any procession that might have that effect. I submit to the Minister that he should advise Sir David McNee to recommend that such an order should be introduced tomorrow because the existing powers are sufficient to achieve the objectives that the authorities may have in mind.
I urge that the present order be amended in time for the Mitcham carnival procession to take place on Saturday. I have spoken briefly, because the hon. Member for Fulham (Mr. Stevens) wishes to say a few words. Without encroaching on the Minister's time, I hope that he will be able to do so.

Mr. Martin Stevens: I shall add a few remarks to those made by the hon. Member for Mitcham and Morden (Mr. Douglas-Mann). He was kind enough to refer to the Fulham carnival. Although it was due to be held on 4 May, it is—alas—a casualty of the order. I make no complaint to my hon. and learned Friend the Minister of State about the conduct of the Home Office. My right hon. Friend the Home Secretary was personally concerned to help. He devoted a great deal of his own time to examining the order to see whether a variation could be advanced that would permit the type of carnivals that play a useful and, traditional role to take place, whilst excluding those processions and marches that might put the Queen's peace at risk. My right hon. Friend also found time to talk to me about it.
Unfortunately, no such formula could be found. I do not wish to compete with the hon. Member for Mitcham and Morden about the carnival and the number of floats and marching bands and the size of the schoolboy and schoolgirl contingent that has been rehearsing Fulham football club songs for weeks. Not only has a great deal of charitable money been lost; a great deal of hard work has been wasted. In addition, next year it will prove that much more difficult to persuade those whose work and effort was wasted this year to put their shoulders to the wheel and to maintain our tradition.
I hope that my hon. and learned Friend will reply to the two points that I shall make. The order specified that all marches were to be prohibited with the exception of religious marches and traditional marches on May Day. When I heard that I was not worried, because many people think that bank holiday Monday is May Day. For three years—almost since the introduction of the bank holiday—the Fulham carnival has been held on that day. Late on Tuesday night, the local chief superintendent of police notified us that the ban applied to us. It was only then that I got Scotland Yard to read out the exact words of the order. The order stated that May Day was to be interpreted as Friday 1 May. That had the ironical effect that Labour Party marches and Trade Union Congress marches were permitted. However admirable such events may be, no one can deny that they are political. However, like the Mitcham Brownies event, the Fulham carnival is a non-political occasion. Members of all parties work cheerfully together to make it a success. Nevertheless, it was banned.
I understand that the Home Secretary's discretion is limited to signing or not signing the order. It is up to the Commissioner of Police of the Metropolis to frame the order and to submit any variations to the Home Secretary. Between now and the next emergency I hope that the Home Office and the Metropolitan Police will continue the talks that took place following my intervention. I hope that they will be more successful than they have been. The order is clearly not in the public interest.
Secondly, and more importantly, from my conversations with senior officers in the Metropolitan Police, it became clear that they were looking for an open and shut formula. They wanted one that left no loopholes and that relieved the local police of any discretion. I do not believe that in these difficult times and in a matter of this complexity the police can expect to be wholly freed from the use of their discretion.
For example, if the questions had been put—"Has this procession taken place before? Has it taken place on this particular day? Have there ever been the remotest political overtones to it? Has there ever been the remotest danger to the peace? Have the police ever had to be involved in maintaining order?"—the answer from the local chief superintendent in the case of the Fulham carnival would have been "No", and I do not believe that it would stretch his capacity to ask him to make that decision.
If, of course, the procession had never been held before, it would be much easier to say "I cannot give that assurance because we do not know the people running the event and it has not happened in the past." But in this case, and in the case of the Mitcham carnival, it has happened before.
Those are the two points that I wished to put to my hon. and learned Friend, and I am most grateful to him and to the hon. Member for Mitcham and Morden for permitting me to intrude between them—not as the meat in the sandwich, since to say that would be impolite and inaccurate—but at any rate to intrude between them in this interesting and important Adjournment debate.

The Minister of State, Home Office (Mr. Patrick Mayhew): I am grateful to the hon. Member for Mitcham and Morden (Mr. Douglas-Mann) and to my hon. Friend the Member for Fulham (Mr. Stevens) for the way in which they presented this matter to the House tonight. I wish to say at the outset that neither my right hon. Friend the Home Secretary nor the Commissioner of Police of the Metropolis has any wish to prevent people from enjoying themselves or to ban events that in themselves may pose no threat to public order, such as the carnival procession at Mitcham Common, which was to have taken place next Saturday, or the Fulham carnival to which my hon. Friend referred.
I do not for a moment doubt that, just as the Fulham carnival has never been a source of either trouble or disorder, the same may in all probability be said of the carnival at Mitcham. Both my right hon. Friend and I have the greatest sympathy with constituents who are affected by the ban that has had to be imposed and with the disappointment that they will feel. The fact that my right hon. Friend greatly dislikes the banning of processions is, I believe, well known. But the commissioner has a duty to try to prevent serious public disorder, and if we are to discuss the terms and effect of the present banning order it is important that we go back to the principle on which that order was based, namely, the prevention of serious public disorder being occasioned by the holding of public processions.
Under the Public Order Act 1936, which the hon. Member for Mitcham and Morden has already cited, the commissioner may apply for the Home Secretary's consent to make a banning order only where he is of opinion that the other powers conferred on him by the Act will not be sufficient to enable him to prevent serious disorder from taking place. He has to take account of the total situation that may confront the police. There is no power to ban an individual event as such, although, as the hon. Gentleman rightly said, bans may be made on a "class of procession". However, a narrow prohibition, attractive though it may seem to restrict its scope, may not alone be sufficient to achieve the primary aim of preventing serious disorder.
It follows, therefore, that careful consideration has to be given to framing the terms of an order. There is little point in imposing a ban if the organisers of an event likely to occasion serious disorder can nevertheless easily circumvent it by, for example, marching under the unmbrella, as it were, of another organisation, or marching for a professed purpose other than the purpose that has been banned. The hon. Gentleman suggested that the ban could be amended to refer to political processions or political purposes. The courts cannot in every case determine these issues in advance of the occasion.

Again, if the opponents of the organistion remain free themselves to hold a march, the confrontation that it is desired to prevent may take place in reverse. There are other ways in which a ban too narrowly drawn may be circumvented so as to occasion disorder. For example, a nearby venue may be substituted for the one prohibited under the order. I am sure that hon. Members can understand the problems that may arise.
On the other side of the line, to identify political marches as a prohibited class would give rise to equally great problems of definition and certainty. I understand that police officers may want certainty in the interpretation of an order and not have to make a difficult and perhaps politically controversial decision on definitions.
On the other hand, no one wants the effects of banning orders to be broader than the circumstances justify. It is a matter of judgment and balance, but, in the end, the terms of a banning order—if it is to achieve its object—must be governed by the circumstances with which the police are faced.
The hon. Member for Mitcham and Morden asked about the prospects for the Notting Hill carnival. In considering the commissioner's request to make the current order, the Notting Hill carnival, which takes place in August, has not featured in my right hon. Friend's thinking. It has never been raised, let alone considered or discussed. It has simply not come up. The present order has no relevance to it. I hope that that disposes of any fears that there may have been that this intended to serve as a precedent for the Notting Hill carnival. It has no relevance to it whatever. I cannot deal more specifically or emphatically with that than I have done. I do not believe that it is possible to deal with it more emphatically.

Mr. Douglas-Mann: Why has it been necessary to impose so many bans in 1981 and not for the previous 30 years? Will the hon. and learned Gentleman give an assurance that the bans imposed in the earlier part of the year will not be repeated?

Mr. Mayhew: I cannot give an assurance because I do not know what circumstances will arise in comparison with this year and previous years. The circumstances in recent months have not been the circumstances of recent years. In each case this difficult question has to depend on the circumstances that confront the police. In the present ban in London I know that the commissioner considered with great care the form that the banning order for the present ban in London should take. He was especially concerned about the difficulties that a ban might present for a large number of festive celebrations which take place at this time of year.
I assure the House that a decision to impose an order was not made without a good deal of careful thought and regret that it was necessary. That decision was not taken

lightly. Nevertheless, the commissioner reluctantly considered that an order in the present terms was necessary and my right hon. Friend with equal reluctance agreed to the order.
As hon. Gentlemen will know, the commissioner sought my right hon. Friend's consent to an order which enabled the traditional May Day marches to go ahead. I am grateful to my hon. Friend the Member for Fulham for what he said about my right hon. Friend the Home Secretary's concern to try to meet my hon. Friend's constituents' natural and proper desires. It did not prove possible to accommodate their wishes within the wording of the order. But my right hon. Friend is entitled to considerable credit for having gone out of his way to permit the marches that traditionally take place under Labour Party auspices on 1 May. He was anxious, as he made clear in the House a few days ago, that a Home Secretary should not appear to be seeking to stifle the political opinions of those who oppose the Government of which he is a member. But it proved to be impossible to frame that to accommodate those whose marches traditionally take place on or about 1 May. We shall take careful account of what has been said by my hon. Friend in considering any further applications that may be made. We understand how important such events are to many people—not only to members of the Labour Party but to many public-spirited organisers of charitable and other worthwhile events.
As my right hon. Friend made clear at Question Time, he considered it necessary to make that exemption. He was unhappy not to be able to go further but he believed that that was not possible. Even the narrow relaxation of the ban posed difficulties for the police. It is important that they are understood. Members of the National Front were advised to try to join the traditional TUC march and they duly attended. Fortunately the police were able to keep order, and the march passed without serious incident. However, no fewer than 3,000 police officers had to be deployed in the professional judgment of the commissioner. There were fears that the outcome would not be so peaceful.
Had the exemptions that are often made for festive and ceremonial events been included in the order—in which event the Mitcham and Fulham carnivals might have been able to take place—it was for consideration whether other marches, less innocuous in character and intent, might have gone ahead also, with grave risk of serious public disorder, especially in the light of the demands that they would have made on the manpower resources of the police.
The judgment necessary in deciding the scope of a banning order is difficult. It is a practical judgment. That is why the initiative for a ban rests with the police. Problems of principle are also involved and they must be considered. My right hon. Friend and the commissioner are aware of the scope for abusing their great powers and they are careful to be seen not to do so.
The Government are reviewing the Public Order Act 1936 and related legislation under which the orders are made. We are examining carefully the power to ban processions. The Home Affairs Committee has recently examined the subject and concluded, albeit reluctantly, that the present power to impose bans in general terms should be retained.
We realise that however strong the case for a fairly comprehensive banning order at present, it is little comfort


to those whose carnival procession cannot take place. However, other attractions appear at such events. They are free to go ahead as planned—but the procession is not. When local events are disrupted the police are ready to assist the organisers to find alternative ways of exhibiting the floats and would-be marchers. I hope that hon. Members will accept that we do not seek to pretend that the ban on marches has not presented the organisers of such events with difficulties. However, in present circumstances it seems right to try to prevent, as fully as possible, serious public disorder in the streets of London.
The need to impose a ban illustrates the harm done to innocent citizens by people who seek to abuse the privileges of our free society by creating or provoking disorder and violence in the streets for their own disreputable ends. My right hon. Friend must try to achieve a balance. He can never hope to satisfy everyone.
It would have been tempting to make the order much narrower in scope. That would have been more popular at first. However, if it had been exploited by troublemakers and events had gone badly wrong at some event, such as

the Mitcham or Fulham carnival, with injury to innocent people and damage to property, my right hon. Friend would rightly have been subjected to trenchant criticism.
My right hon. Friend has to achieve a balance between conflicting interests, each of great importance and value to society and individuals. He can never hope to satisfy everyone, as he is well aware. It would have been tempting to try to make such an order, but he knows that although one is never able to satisfy everyone, if he can demonstrate that he has sincerely attempted to strike the right balance he will be judged fairly by the people of this city. That is what he has sought to do.
We fully recognise the disappointment that the order has caused, but we are satisfied that the ban was and remains justified, both as to its scope and duration. However, we shall pay great attention to what has been said in this short debate. In the unhappy event of further circumstances arising in which it might be considered necessary to apply for a ban, I am sure that what has been said tonight in the two constructive and helpful speeches to which I am replying will be of great help to the commissioner and to my right hon. Friend.

Question put and agreed to.

Adjourned accordingly at four minutes to Two o'clock.